There is no legal reason to issue stock certificates in most jurisdictions. Many corporations still issue them, but that is out of habit and custom. When is the last time you bought shares in a public company and asked your broker for a stock certificate? The answer is probably never, and that is because public companies in the US long ago deposited all their stock certificates with a predecessor of the Depositary Trust & Clearing Corporation in New York, and transfers of stock are handled as book entries.Even this system is out dated. Most jurisdictions permit stock to be issued without ever creating a certificate. In Washington State, RCW 23B.06.260 permits the board of directors to approve issuing shares without certificates. In that case, each shareholder is instead sent a record containing the information that would otherwise be on the certificate.I often advise clients to set up stock registers in spreadsheets that contain all the information required by RCW 23B.06.250. Each spreadsheet has a header with a date, the corporation's name and the class of stock covered. The footer consists of a stock legend that states that the shares are not registered and therefore may not be transferred by law except pursuant to an exemption and that the shares are also subject to additional transfer restrictions and other rights and obligations under a shareholders' agreement. In the case of preferred stock, the legend also contains a reference to the articles of designation that define the rights, preferences and limitations of the series.Each entry or spread sheet row in the stock register lists the date of issuance, to whom the shares were issued, and the number of shares so issued.Each time the spread sheet is updated, the original is signed by two authorized officers of the corporation and then scanned and saved as a PDF file that can be emailed to each shareholder. Once emailed, the statutory requirement of sending a record has been satisfied. Furthermore, the corporation is well on its way to complying with RCW 23B.07.200, which requires that "after fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders on the record date who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each shareholder."Of course a corporation can still use old fashioned stock certificates. But certificates are expensive to produce, often contain errors, get damaged or misplaced and are difficult to collect when the corporation recapitalizes or is merged into another entity. As far as I am concerned, let's end this practice and stop using stock certificates.I invite your comments to this blog post and look forward to posting another missive in the near future.John A. Myer is a corporate and securities lawyer with Myer Law PLLC in Seattle, Washington. This posting does not constitute legal advice.
