What is a Share Certificate?

Also known as a stock certificate, a share certificate is a physical paper representation of stock ownership. Stock ownership denotes ownership of a portion of a company known as a share, meaning that the share certificate also represents the stockholder's ownership in a stock-traded organization like a business or firm. Shares of stock are traded, or bought and sold, through online brokers or at physical locations called stock exchanges. Depending on the type of share certificate, the certificate might either be vital to the stockholder's ownership of the share, or merely a paper receipt for a recorded stock transaction.

Generally, stock share certificates come in two basic types: registered stock and bearer stock. A registered stock share certificate is a paper representation of stock ownership that is also kept on record. These shares were traded in a transaction that was tracked, usually in a computer system. Lost or stolen registered stock certificates are essentially valueless, as records of stock ownership transfers can easily be retrieved from electronic broker databases.

Bearer shares are shares issued to the purchaser from the issuing company without recording the transaction or ownership of the stocks. For that reason, bearer stocks generally belong to the person who has the certificate, though some bearer stocks can be traced back to the original owners if they are lost or stolen. In movies, when the hero finds a treasure chest full of valuable stock market certificates, those certificates are bearer certificates.

A stock share certificate represents stock, or actual portions of ownership of a company. When a shareholder, also called a stockholder, owns stock in a company, she is entitled to a corresponding percentage of the assets the company has. In finance, an asset is anything of any value; it can be cash or any item owned by the company that can be sold for cash. Assets are in contrast with liabilities, which can be operating costs or money owed by the company. A shareholder is a person who owns even one share of stock in a company.

When a company has subtracted liabilities from assets, the remaining figure is the shareholders' equity. The shareholders' equity is essentially the net worth of the company, which corresponds to the money shareholders have invested in the company. The value of the equity for each share of stock differs from the stock market price, which is often much higher than the price determined by figuring shareholders' equity. One of the liabilities subtracted to figure equity is the stockholder dividend payment, or the percentage of the company profits owed to the stockholders due to their ownership in the company. Usually, stockholders with registered shares receive automatic dividend payments, while a stockholder with a bearer share certificate normally has to take the certificate to the issuing entity to collect dividend payments.