Free Stock Certificate

The articles of incorporation or the bylaws may specify whether the corporation will have a "corporate seal." Many new corporations choose not to have a corporate seal in order to avoid the requirement that such a seal imprint all official corporate documents. For example, the seal can be misplaced, stolen, or it may be inconvenient to obtain when it is otherwise needed.

If the corporation has a corporate seal, it must be imprinted on the stock certificate beneath the officers' signatures.

It is permissible, but not recommended, to issue fractional shares. For example, if Bob and Ted and Sarah intend to own the corporation in equal shares, it is permissible to issue 33-1/3 shares to each of them. However, if the corporation has authorized 1,000 shares, it is easier to issue, for example, 100 shares to each of them. Each will own 1/3 of the corporation because each owns 1/3 of the 300 issued shares. The remaining 700 shares are held by the corporation.

Title to stock can be in the name of one person, or it can be owned jointly with another person. There are several ways to own property jointly:

• joint tenants (with rights of survivorship): when one joint owner dies, the surviving joint tenant automatically owns the deceased owner's interest.

  
  

• tenants in common: when one owner dies, his or her interest in the property goes to whomever he or she designates in his or her will.

  
  

• community property: nine states have community property laws that affect ownership of property between spouses.

Joint tenancy can be a valuable tool for avoiding probate in small estates, particularly if the joint tenancy is between spouses. However, it can cause unintended results if the joint tenancy is between a parent and child (or other third party). Furthermore, joint tenancy can cause serious tax planning problems for spouses whose combined estate exceeds the exemption level for federal estate taxes.

If two or more people own property as "tenants in common," each joint owner owns an equal share in the property. When the first owner dies, the surviving owner does not automatically become the owner of the entire property, as is the case when property is owned in joint tenancy. Instead, the share of the deceased owner passes to whomever is designated in his or her will. It is unusual for two persons to take title to stock as tenants in common, because it is easy (and preferable) to merely issue the corresponding number of shares to each of them in their individual names.

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and, to a limited extent, Wisconsin have community property laws that affect ownership of property between spouses. Community property generally refers to property acquired by either spouse during the marriage, except property that is received as a gift or inheritance. The community ownership rule applies even though the property may be titled in only one name. If stock is purchased by a husband and wife using community property (earnings by either spouse during the marriage), it is often preferable to title the stock as community property. This is because there is an income tax benefit gained when one of the spouses dies owning stock that has appreciated in value while that spouse owned it. If this advantage may be important to you, you should consult an attorney or tax advisor.

Most corporations today choose to authorize stock with "no par value." In the past, corporations designated a par value of, for example, $5 per share, in order to set a minimum price at which the shares could initially be sold by the corporation. More importantly, for the protection of the corporation's creditors, the corporation could not distribute cash to the stockholders which would deplete the corporation's "capital" below the aggregate par value of all issued shares. However, today's creditors typically restrict such distributions by separate agreements with the corporation, so there is less need to designate a par value merely to satisfy creditors.

Check the articles of incorporation to see if the stock has been assigned a par value. If so, the board resolution authorizing issuance of the shares, in return for payment from the intended recipient, should correspond with that minimum price per share. If the articles provide that the stock is no par value stock, the stock can be sold for any amount per share, but each of the initial stockholders, if more than one, should contribute the same amount per share, whether it be in the form of cash, property, or past services. Many states prohibit payment in the form of a promissory note or for future services.

Preemptive rights give existing stockholders the right to purchase sufficient shares---whenever the corporation intends to sell more shares---so that those existing stockholders can maintain their percentage ownership of the corporation. Because the authority to issue new shares typically rests with the board of directors, a majority stockholder could conceivably vote to sell new shares to himself or herself which would dilute the percentage interests of the minority stockholders and allow the majority stockholder to control major decisions which could otherwise have been blocked by the minority stockholders.

For example, suppose the corporate bylaws require a 75% approval by the stockholders in order to sell a major corporate asset, such as a factory. Stockholder Smith owns 55% of the outstanding stock of the corporation, not enough to approve the sale without the consent of the owners of another 20% of the shares. Therefore Stockholder Smith votes to sell enough new shares to himself, and not to the others, so that his percentage ownership of the corporation equals 75%, allowing him to unilaterally approve the sale of the factory. Therefore, preemptive rights are usually intended for the protection of minority stockholders.

If the stock certificate being prepared constitutes a later issuance of new shares by the corporation (other than the initial issuance at the corporate formation, and other than a transfer from one person to another), you should determine whether the issuance is subject to preemptive rights in favor of the other existing stockholders. This may be ascertained from a review of the corporation's governing documents, including the Articles of Incorporation, By-laws, or shareholders' agreement (if applicable).

This stock certificate is intended to be used by a corporation which is formed, owned, and operated by a small number of stockholders, and which will not in any manner solicit outside investors to buy its shares of stock. State and federal securities laws require compliance with complex registration procedures unless the incorporation process meets a set of exemptions including:

1. a very limited number of persons will purchase the stock,

2. there will be absolutely no advertising to the general public to buy the shares,

3. the shares will be sold/issued to persons who will become directors or officers of the corporation or who are immediate family members of the stockholder/director or stockholder/officer, and

4. the shares will be purchased by persons who intend to hold the shares for their own investment and not for resale.

If any of the above provisions are not met, or if there are any unusual circumstances which are not addressed by the options available in this document, a lawyer should be consulted.

Securities laws will also play a role in the event that the shares are ever sold to a third party after the additional offering, with the same restrictions in effect. This stock certificate includes a "legend" explaining that the shares may not be sold unless such sale is permissible under both state and federal law. However, it is the corporation's legal duty to assure that the transfer is legal before recording the transaction on its stock transfer ledger. If an anticipated sale does not meet any of the above provisions, or if there are any unusual circumstances, a lawyer should be consulted.

1. The stock certificate should be signed by the president and the secretary of the corporation. It is not necessary that the signatures be witnessed or notarized.

2. If the corporation has a corporate seal, the seal should be imprinted on the certificate beneath the signatures.

3. The details of the certificate should be recorded in the corporate "stock transfer ledger."

4. After the certificate is signed (and sealed), the certificate should be delivered to the named owner(s).

5. The transfer section on the bottom of the certificate should not be used at this time. It is availiable for use when the stock is sold or transferred by the stockholder.

A stock certificate provides evidence of the ownership of shares issued by a corporation. The stock certificate is not the stock itself, but merely tangible evidence of ownership of the shares. The corporate bylaws may specify whether the corporation is actually required to issue stock certificates. As a practical matter, most corporations are required to issue certificates upon demand by a stockholder, and most issue certificates as a general rule.

This document will be useful to print stock certificates, either those issued initially by the corporation to its original stockholders, or to new owners who have purchased their shares from a prior stockholder. It is intended to be used by a corporation which is formed, owned, and operated by a small number of stockholders, and which will not in any manner solicit outside investors to buy its shares of stock.

The corporate secretary has the responsibility to maintain a current record of the stockholders. The record is often called a "stock transfer ledger." The ledger includes the name and address of each stockholder, the date and number of new shares issued, and the certificate numbers. If any of the certificates are later transferred to other owners, that information is also recorded, showing the new certificate number and the owner for each transferred certificate.

The stockholders of a corporation may wish to restrict the sale or transfer of stock to outsiders, in order to maintain the "closely-held" nature of the corporation. The restrictions may also be important to protect advantageous tax treatment, for example, to restrict the number of stockholders to less than 75 in order to preserve the right to be classified as an "S" corporation.

In order for such restrictions to be enforceable, the parties to a transfer of stock must have actual notice of the transfer restrictions. Therefore, the restrictions should be noted conspicuously on the stock certificate itself so that proposed purchasers of the stock have such actual notice of the restrictions. The certificates must bear the restrictions even if the language is included in the articles of incorporation. However, the restrictions noted on the certificate must also be supported by a provision creating the restrictions in the articles or bylaws, or in a stockholder agreement.

A common example of a transfer restriction is to give the corporation a "right of first refusal," whereby any stockholder proposing to sell his or her stock must first offer such stock to the corporation upon the same terms as offered to that stockholder by a willing buyer. Or, the restriction may be created by private agreement among all of the stockholders which typically requires a selling stockholder to give the non-selling stockholders a right of first refusal before selling the stock to a third party.

An example of a restriction agreed upon by the stockholders is as follows:

This stock certificate is transferable only upon compliance with the provisions of an Agreement dated (date), between and among (names of stockholders), a copy of which is on file in the office of the Secretary of (name of corporation).

If a current stockholder is transferring his or her shares to another stockholder (in contrast to new shares issued by the corporation), the lower portion of the stock certificate ("Transfer section") should be completed by the selling stockholder. When the new owner's name is inserted and the transfer is dated and signed, the certificate should be returned to the corporate secretary, who will issue a new certificate and record the transfer in the corporate stock transfer ledger. In other words, it is not appropriate for the new owner to simply retain the (old) assigned certificate. Instead, the corporation should issue a new certificate. Neither is it appropriate for the corporation to reuse the former certificate number. Rather, each time that a certificate is prepared, the next sequential number should be used.