Give employee stock owners proof of ownership: Stock Certificate

A Stock Certificate, a document serving as tangible evidence of ownership in a corporation, encompasses several essential terms crucial for understanding one's stake in the company. Here are some of the common terms you may come across when looking into making your own Stock Certificate for your shareholders:

Authorized shares

The total number of shares "issued" to persons by a corporation cannot exceed the number of shares "authorized" by the Articles of Incorporation. "Authorized shares" refers to the total number of shares that can be sold ("issued"), either upon formation or at a later time. With the number of authorized shares being the maximum, you should decide how many shares to issue to each stockholder. The number of shares issued only needs to be large enough to reflect the desired percentage ownership of the owners – in other words, it is typical not to issue all of the authorized shares. 

Classes of stock

Corporations may generally authorize more than one class of stock, such as "common" stock and "preferred" stock, each with different rights and privileges regarding such things as voting and the payment of dividends. However, most simple corporations authorize only one class of stock: common. If the corporation will offer more than one type of stock, it is strongly recommended that you consult with an attorney prior to creating the class of stock. 

Corporate seal

The Articles of Incorporation or Corporate 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 or stolen, or it may be inconvenient to obtain when it is needed. If the corporation has a corporate seal, it must be imprinted on the Stock Certificate beneath the officers' signatures. 

Fractional shares

It is permissible, but not recommended, to issue fractional shares. For example, if Bob, 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. 

Number of shares

The number of shares that are issued to each person should be authorized in advance by a corporate resolution. The resolution should specify who will receive the shares and what the corporation will receive in return, such as cash, property, or past services.

Stock transfer ledger

The corporate secretary is responsible for maintaining 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. 

Transfer of shares

If a current stockholder is transferring their 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. It would also be inappropriate for the corporation to reuse the former certificate number – rather, each time that a certificate is prepared, the next sequential number should be used. 

Still have questions? Do not hesitate to ask a Legal Pro.

Yes, title to stock can be owned jointly with another person. There are several ways to own shares 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, their interest in the property goes to whomever they designate in their 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 their 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 a Legal Pro or tax advisor.