A share certificate is a document that serves as proof that the named person on the share certificate is listed as a shareholder in the company’s share ledger and that the shares are fully paid. The share certificate is, therefore, a physical security, similar to a very large banknote, and must be treated with the same caution. To simplify, the person who holds the share certificate in their possession owns the shares.
When a share certificate is issued, the company must note in the share ledger that a share certificate has been issued. The board of directors must sign the share certificate, and the certificate may only be handed over to the owner, not to anyone else. If the share certificate is transferred to another person, the transfer must be endorsed on the back of the certificate. The new owner must then contact the company to be recorded in the share ledger; otherwise, the previous owner will remain listed as the shareholder in the ledger. However, this person cannot exercise their rights (vote with their shares or receive dividends) as this requires the share certificate to be presented beforehand.
The purpose of having a share certificate may be that the shareholder desires a physical proof of being listed in the share ledger, which was more common before the digital age. The word “share” comes from the Dutch “actie” and the Latin “actio” (action), meaning a stake in a joint-stock company. The oldest known preserved share certificate was issued by the Amsterdam Bank in the 17th century. The oldest known preserved Swedish share certificate was issued on December 31, 1728, and was based on “låtter” (bonds) of 100 daler silver coins each, for the company Ahlingsåhs Manufactur Werk.
Another reason for having a share certificate may be that the shareholder needs to pledge their shares as collateral for a loan, and the lender will not accept a notice pledge. Or in the case of a transfer, where the buyer demands that the share certificate be transferred.
Who Would Want a Share Certificate in the 2020s?
If a shareholder in a bearer share company requests it, the company must issue a share certificate for their shares. The certificate must be signed by the entire board of directors.
If a share certificate is to be transferred or pledged, the provisions regarding promissory notes to a specific person or order under the Law on Promissory Notes apply. A share certificate is, therefore, a physical security, much like a large banknote, and must be handled with the same caution.
A share certificate can be exchanged for one or more other certificates. In that case, the old certificate must be destroyed or canceled. A new certificate issued instead of another, in connection with an exchange or so-called annulment (cancellation of a lost document), must indicate that it replaces the previous certificate.
With NVR (digital share registration systems), the vast majority of shareholders choose not to request a share certificate, as they can easily see that they are listed as shareholders in the web-based service, and that transfers and pledges have been recorded in the share ledger. This makes the process much more efficient for all parties involved.