If you want to prove that you are the legal owner of a certain number of shares in a company, you need a share certificate signed on the company’s behalf. Certificates representing ownership of shares of stock are also known as share certificates. Here, we take a closer look at how share certificates work in South Africa, and explore the advantages and disadvantages of share certificates.
Shares certificates explained for South Africa Revealed (2022):
How share certificates work
Investors who purchase newly issued shares of stock receive a certificate representing their ownership in the company. The share certificate effectively works as a receipt for the purchase and ownership of shares in the corporation.
From a specified date forward, this document proves that the holder has registered ownership of the shares.
In the past, traditional dividend claims were verified by presenting a stock certificate. The dividend payment receipt was endorsed on the reverse of the certificate upon each presentation. Using this method, all dividend payment documentation might be kept together in one place.
Within two months following the issuance or transfer of shares, the corporation is required to provide a certificate representing those shares. Unless a shareholder wishes otherwise, a company may issue a single certificate for all shares issued or transferred at a given moment.
Occasionally, a stockholder can authorize another individual to cast votes on his or her behalf by executing a proxy.
Shareholders who do not have physical certificates can still appoint proxies to vote on their behalf at shareholder meetings. Corporate law and the company’s charter establish the parameters for voting.
If you have a share certificate that has been lost, stolen, or damaged beyond repair, you can request a new certificate for the same amount of shares. In this scenario, the shareholder must return the damaged original to the corporation before a replacement can be supplied.
Currently, the shareholder has the option of requesting either a single certificate or many certificates.
Share certificates around the world and in South Africa
In today’s electronic financial markets, investors rarely need to physically hold onto their share certificates. Some nations, such as Sweden, have gone so far as to do away with physical share certificates altogether in favor of a more efficient computerized registration of shareholders.
The Central Securities Depository (CSD) in the United States is in charge of the electronic custody of certificates and uncertificated (dematerialized) shares, respectively, to facilitate the transfer of ownership through a book entry rather than the physical transfer of certificates.
In the case of stock certificates, the holder has the option of presenting the certificate to the company as registered or in bearer form.
The holder of a bearer share certificate has all the rights of a stockholder, while a registered share certificate simply proves that the person is the legal owner of the stock.
These days, it’s not uncommon to find people paying hundreds or even thousands of dollars for a single share certificate due to its historical significance or aesthetic value. The worth of a share certificate is determined by its age and quality, much like a stamp or banknote.
In South Africa, a share certificate serves as official documentation of stock ownership. Information such as the name and surname of the shareholder, the shareholder’s identification number, the shareholder’s residence address, the number of shares owned, and the actual share numbers owned are included in this document, which has been signed by the directors of the firm.
The share register is a set of related documents that should accurately reflect the current holders of share certificates, as well as those that have been canceled and those that are still valid.
It is important to note that CIPC, the business registrar, does not issue share certificates and does not maintain a record of the current owner of your firm.
Directors, who are appointed by the shareholders and are legally responsible for the firm, are recorded. A company register is where the directors are required to keep track of all the certificates and registers for the firm’s shares.
Special requirements for share certificates in South Africa
- Certificates representing shares of stock in a corporation must be signed by two authorized signatories, one of whom is usually the company secretary. An original certificate is replaced by a signed copy.
- It is imperative that the original stock certificate is preserved in a secure location.
- There can be only one signed original certificate of shares on file at any given time.
- According to section 50 of the Act, a firm must keep a share register (securities register).
- When it comes to the various types of shares the company has distributed, the register needs to reflect the following details for each:
- The register must be held at the company’s registered address.
Advantages of share certificates
The use of share certificates has both benefits and drawbacks. Some advise stock certificates if you have a large sum of money, are interested in investing, and wish to earn substantial dividends (the amount your firm provides to shareholders from its monthly earnings).
When it comes to investing, a certificate of deposit account is interchangeable with a stock certificate account (CD). Nonetheless, it is not a bank but a credit union that issues it.
Certificates of stock ownership are an excellent vehicle for accumulating dividends and building wealth through investing. Unlike other options, you won’t be able to access your funds without paying a penalty, but you should earn more interest.
Here are some further advantages:
- Extendable period of time: consistent returns on investment are assured. By knowing how quickly your account balance grows, financial planning is simplified even further.
- Productivity is excellent: Among the different types of savings products, stock certificates offer significant returns while remaining a stable investment option over time. Choose the option for which the increased profit will justify the additional time investment.
- Investment returns on the certificate: In the context of a stock certificate, the yearly rate of return indicates the potential dividend or profit. Included in this interest rate is the timeframe during which compound interest will be calculated or the period during which your account will be credited with revenue. Financial cooperatives might determine rates on a yearly, quarterly, monthly, or even daily basis.
- Increased profit: Certificates are more valuable to banks than conventional savings accounts since certificate holders have less access to their money. Thus, the certificate’s interest rate is more crucial than that of a regular savings account. You may improve your return on investment in this way.
Disadvantages of share certificates
The issuance of share certificates has a number of drawbacks.
The most significant cost and time commitment to the business are highlighted. Producing physical stock certificates requires a lot of time and money. Indeed, most companies require an entire department whose sole responsibility is to handle share certificates.
The upkeep of a stock certificate system necessitates a great deal of time-consuming paperwork. Certificates must be signed and delivered to the company before any transaction, including a merger or spinoff, may be finalized. Not only that, but it becomes much more challenging to deal with compliance.
Additionally, it is particularly challenging to keep track of ownership, as shareholders might transfer certificates to other people without informing the organization. It requires a lot of administrative legwork to confirm names and obtain signatures for the transfer of ownership.
That is to say, the corporation must continuously monitor the shares’ ownership. Typically, a computer is used for this purpose.
Lastly, if a shareholder has a paper certificate and it is lost or stolen, the corporation will have a lot of extra work to do. In order to issue new paper certificates, the company must first locate the old ones, confirm ownership, put a “stop” on the old ones, and then issue the new ones.
Obviously, the shareholder will also experience some level of inconvenience during this procedure. In conclusion, it is extremely difficult to record and monitor trades using paper stocks and to verify their authenticity.
A share certificate is a document attesting to the ownership of a certain number of shares in a company and signed on the company’s behalf. Certificates of ownership are sometimes known as stock certificates.
Voting rights are spelled out in the company charter and in business law. Should the original stock certificate is destroyed, lost, or stolen, a replacement will be issued for the same number of shares.
If this happens, shareholders must send back the torn copy to the corporation before a new one can be issued. Now is also the time for shareholders to use their option to issue either a single or separate certificate.
Shareholders who physically possess their shares’ certificates are entitled to greater voting power. Similarly, shareholders without a certificate may be allowed to vote for shares related to others.
The transfer agent must be notified immediately of a “stop transfer” request made in the event that a stock certificate is lost, damaged, or stolen.
This makes it impossible to transfer the stock certificate to another person. It’s also possible to get assistance from your stock broker with regard to the matter.
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