What is a share certificate and why is it used?

What is a share certificate and why is it used?

What exactly is a share certificate, and what function does it serve today? Many also wonder whether share certificates are still needed in an era where most processes are digital. Here, we explain what a share certificate is, how it works, and when it may be relevant to use one.

What is a share certificate?

A share certificate is a negotiable instrument, a physical document, that proves that the person named on the certificate is registered in the company’s share ledger as the owner of the shares. The share certificate therefore functions as a receipt or proof of ownership confirming that the shares are paid for and belong to the specified person.

Put simply, the person who holds the share certificate is considered to own the shares. For that reason, share certificates must always be handled with the same care as cash or other securities.

How does a share certificate work?

When a company issues a share certificate, the following steps must take place:

• The company records in the share ledger that a share certificate has been issued.
• The share certificate must be signed by the entire board of directors.
• The share certificate may only be handed over to the shareholder.
• If the shares are sold or transferred, this must be endorsed on the back of the share certificate. The new owner must then contact the company to be entered in the share ledger; otherwise, the previous owner will remain registered.
  

It is also important to remember that certain rights, such as voting at the general meeting or receiving dividends, may require the share certificate to be presented.

Why do share certificates exist?

Historically, the share certificate was a way to prove ownership at a time when everything was handled on paper. The word “share” comes from the Dutch actie and the Latin actio (deed or action). The oldest preserved Swedish share certificate was issued as early as 1728.

Even today, there may be reasons to request a share certificate, for example:

• If a shareholder wants physical proof of their holding.
• If the shares are to be pledged as security for a loan.
• If a buyer in a transfer explicitly requires share certificates to be handed over.
  

Are share certificates needed today?

In modern practice, most shareholders choose not to request a share certificate. Instead, it is sufficient to be registered in the share ledger, which is now most often managed digitally.

With digital services such as NVR, both shareholders and companies can easily see who owns what and manage transfers and pledges without the need for physical documents. This is faster, more secure, and significantly more efficient.

The difference between physical and digital share certificates – learn more here.

Share certificate template – is it needed?

Many people search for a share certificate template, but in practice this is rarely necessary. If a shareholder requests a share certificate, it is the company’s board of directors that is responsible for preparing, signing, and delivering it.

In that case, the statutory requirements for the form and content of the share certificate apply – simply downloading a basic template from the internet is not sufficient.

Vad är egentligen ett aktiebrev och vilken funktion fyller det idag? Många undrar också om man fortfarande behöver aktiebrev i en tid då det mesta sker digitalt. Här går vi igenom vad ett aktiebrev är, hur det fungerar och när det kan vara aktuellt att använda.

The difference between physical and digital share certificates – learn more here.