If your business is still in the seed stage and you don’t have enough capital, you might want to ask willing investors to contribute money towards your venture. In return, you give them equity in the company, meaning they’ll be entitled to dividends when you start making profits. And you need some sort of proof that they gave you some money. That’s where share certificates come in. In this article, you’ll learn all about issuing share certificates to equity investors.
What Is A Share Certificate?
A share certificate is a document that proves the holder has a certain number of shares in the issuing company. Traditionally, they’re issued at the time of incorporation or during a transfer of ownership of shares from one investor to another. Share certificates must have the following details:
- Company name
- Company registration number
- Address of the company’s main office
- Certificate serial number
- Name, contact details, and address of the equity investor
- Number of shares issued in words and numerals
- Signature by two directors or one director and the company secretary
- Date of issue
- Company seal
Paper Vs. Electronic Certificates
For many decades, incorporated companies have been issuing paper certificates to shareholders. Most investors like it this way because they have tangible proof of the number of shares in a given company. However, paper certificates have several disadvantages, as outlined below:
- Tedious clerical work in printing and distributing them
- High mailing costs
- Time-consuming since you must ensure that the investors sign the certificates
- Increased frequency of damage or loss, forcing you to replace them now and then
- It’s difficult to track all certificates, so auditing becomes challenging
For these reasons, many businesses are now shifting to electronic share certificates. They’re virtually similar to the physical ones, only that they’re in PDF format. It’s one step forward in equity management, and you ought to give it a try.
The best approach is to use a certificate management platform, which helps with the issuance of digital certificates. Good software provides you with different certificate templates. That’s important for differentiation purposes since you wouldn’t want your certificates to look like those of every other company out there.
All you have to do is direct the investors to your preferred app. Once signed in, you can deliver the documents to them via the internet. Also, the app should allow the shareholders to append online signatures to confirm their agreement. The documents are then stored in the cloud. It’s easy for both you and the investors to access them whenever needed.
From the foregoing, it seems that electronic share certificates are more convenient than their paper counterparts. The electronic ones can never get lost nor suffer damage. Thus, you don’t have to worry any more about replacements. Also, it saves you from an otherwise hectic load of paperwork. What’s more, it’s very easy to update the share register whenever ownership changes.
How Many Certificates Per Share?
Different investors contribute varying sums of money and hold different numbers of shares. However, you only issue one certificate per shareholder regardless of the number of shares they have. But if you offer several classes of shares, you might have to give two or more certificates to an investor with many types of shares.
Also, if an investor chooses to take more shares at a later date, you must give them a separate certificate that indicates their new equity. The same is true when one transfers shares to another person.
Time Limits
It’s a requirement that companies must issue certificates within two months from the time they get incorporated. For transfers, the new certificates should be issued within a month after the transaction is completed.
Replacing Certificates
In case a shareholder loses their certificate, you should give them a replacement. It’ll help if you ensure that they’re the rightful owners by having them prove their identity. And if they happen to accidentally deface their certificates, ensure that you destroy the damaged ones before issuing new ones. This is to save your firm from an instance where one shareholder possesses two or more certificates, with which they might make false claims against the company.
Conclusion
Issuing share certificates to equity investors is a pretty straightforward process. Once you know the rules to follow, you should have no problem with the issuance. Another thing you have to decide is whether to give out paper or electronic certificates. From the above discussion, you agree that the digital ones might be more efficient than the hardcopy versions. If you decide to go digital, make a point of using reliable equity management software to give you better results.