Explanation of Stock Certificates
The earliest record of a stock certificate dates back to Amsterdam in the early 1600s when the Vereenigde Oostindische Compagnie (Dutch East India Company) became the first to sell its shares to the public. That first stock certificate was rudimentary in appearance compared to those issued today, but the underlying principle remains the same: A stock certificate documents your ownership in the issuing company and confers certain rights in that regard, including the right to participate in any of the company's profits and losses.
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Background
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A stock certificate is a physical document that evidences your proportionate ownership in the issuing company. The issuing company can either be publicly traded, meaning its stock is bought and sold in an organized marketplace like the New York Stock Exchange or the NASDAQ Stock Market, or privately held, which means its stock is not available to the general public, such as stock issued by a small incorporated business.
Market Value
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The stock certificate's market value is determined by multiplying the current price of a single share of the issuing company's stock by the number of shares you own. For example, if the issuing company's price is currently $10 per share and you own 50 shares, the market value of your stock certificate is $500 ($10 x 50). If the issuing company is publicly traded, you can obtain the current per share price ("quote") from the stock exchange on which it trades, such as NASDAQ, NYSE and others.
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Transferability
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Once it's endorsed, a stock certificate becomes a negotiable instrument, meaning the physical document and, by extension, the stockholder's proportionate ownership in the issuing company, can be transferred for remuneration from one person or entity to another. This means you can sell stock certificates you own to someone else and receive the market value from the buyer, as well as buy stock certificates from someone else and pay the market value to the seller. Because they are negotiable instruments -- similar to paper currency -- it can be difficult to establish ownership if your stock certificates are ever lost or stolen. For this reason, you should always store them in a secure location.
Certificate Face
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The front of the stock certificate displays important information, including the names of the issuing company, the stockholder, the number of shares and class of stock (common or preferred, for example) that the certificate represents. If the issuing company is publicly traded, the stock certificate face will display additional information, including the name of the transfer agent, the company that maintains all records that pertain to stock owners, and the CUSIP (Committee on Uniform Securities Identification Procedures) number, which is a nine-character alpha-numeric identifier that is unique to each issuing company and used to facilitate the transfer of ownership of the issuing company's shares. If the issuer is a foreign company, the alpha-numeric identifier is the CINS (CUSIP International Numbering System) number.
Back of Certificate
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The fields on the back of the stock certificate are used to authorize the transfer of ownership. Therefore, you would not complete this information nor endorse the stock certificate unless you were selling or otherwise assigning your shares to another person or entity.
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