The paper stock certificate, which for many years provided proof you owned stock in a company, has all but disappeared. It has been replaced by electronic transaction records. Companies, clearinghouses and brokerages like electronic shares because stock transfers are fast and cheap. Electronic shares also facilitate ownership record-keeping for dividends, buybacks and stock splits.
You can still get paper stocks if your company issues stock on paper, but it may take some work. As of 2010, 94 percent of publicly traded companies still provided paper stock certificates on request. If your company has discontinued paper certificates, though, there's no way you can obtain paper shares. But getting your stock on paper isn't easy. Stockbrokers and transaction clearinghouses discourage paper shares through steep administrative fees of as much as $500. To get paper shares for little or no cost, stock buyers must instruct the broker to put the shares in their name on the books of the transfer agent. Buyers then must call the transfer agent and instruct it to issue paper stock certificates. The broker and transfer agent may charge nominal fees for these services.
Up until 2005, state corporation laws required registered companies to provide paper stock certificates on request, free of administrative charges. Delaware, where more than half of all U.S. companies are incorporated, changed its laws in May 2005 to give companies the discretion to eliminate paper stock certificates or charge for them. Other states followed suit. As of 2011, only Arizona still required companies incorporated there to provide free paper stock certificates. As of 2010, 420 of the more than 7,000 publicly traded companies stopped issuing paper stock certificates. Examples include Apple Computer, Visa, Intel, Tupperware, Chevron, Sears and Tiffany.
All but a handful of stock trades are electronic, through the Direct Registration System (DRS) run by the Depository Trust & Clearing Corp. This industry-sponsored system allows companies and their transfer agents to transfer shares and record the new owners electronically. The federal Securities and Exchange Commission in 2010 directed that all major stock-issuing companies be included in the DRS system. With electronic shares, stock is listed in the broker's name, not yours. The broker in turn keeps track of your stock ownership for buying, selling or collecting dividends.
Owning stock on paper can present problems. You must safeguard the certificate like it was cash. Replacing lost certificates is cumbersome and can be costly. You, not your broker, are responsible for keeping the transfer agent up to date on your address. With paper shares, you have effectively moved your account from the broker to the transfer agent, so the broker no longer will be keeping track of your stock position. Finally, it may take considerable time to receive the proceeds from selling your shares because you must mail the certificate to the transfer agent for processing.
- Jupiterimages/Photos.com/Getty Images