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Company Stock Certs Question

3 points by pittkid102 16y ago

I'm a stockholder in my small private company. Management is asking for my stock certificates so that they have quick access to them in the event the company is acquired. Having not dealt with such things previously, and wanting to protect my rights as a stockholder, should I give them the stock certificates in exchange for a copy of them?

Scott_MacGregor 16y ago
Yes, file the copies with your stock purchase/vesting agreement. Also if you have paid par value or whatever amount for the shares keep your canceled check with the copy of the shares you bought. The company keeps a list of who owns what shares as well as the physical shares. If something should happen to the physical shares they can be reissued.
dpapathanasiou 16y ago
"Management is asking for my stock certificates so that they have quick access to them in the event the company is acquired." That sounds suspicious on many levels. For one thing, they already should know exactly how much equity each employee has. If they don't have those kinds of records, then they're probably going to have a hard time passing a due diligence review by a potential acquirer.
- Scott_MacGregor 16y ago
  It is not suspicious on any level. They are probably doing it on advice of counsel. The actual physical shares will need to be tracked down if they go public, and if any people/shares cannot be found they will have to reissue the shares. Having all of the physical shares in one place protects everyone.
  - dpapathanasiou 16y ago
    Stock certificates in private companies are not bearer-coupons (i.e., even if I get my hands on your certificate, that does not make me the owner of your shares). Furthermore, in 42 states, the board of directors can issue equity shares with a simple amendment to the the company's Operating Agreement. Finally, if the company was operating in one of the 8 states where that's not allowed, or decided to do certificates anyway, the recipients of that equity should not have had the certificates in their hands for long (i.e., they get issued, the recipient has to sign and return within a few days). So the idea that the certs are floating around out there and must be returned immediately for an acquisition is suspicious.
    - Scott_MacGregor 16y ago
      If the company issues physical shares to the employee as they vest monthly, that is 12 physical shares per employee per year. If for instance, there are an average of 10 employees over 4 years that is 480 pieces of paper that will need to be tracked down at some point in time. When the shares are needed, if even one of those people are missing and cannot be found, it adds a pain factor to the process. The physical shares need to be consolidated and accounted for at some point in time. Not everyone leads a stable life where they can be located at all times. For the employee to physically hold the actual physical share in his or her hand is of no greater benefit than holding a photocopy of the shares along with the vesting agreement and any canceled checks used to pay for the shares. Physical shares can be forged just as easily as a photocopy if it were to go before a judge. It is like having 1 dozen green apples, vs. 1 dozen red apples in your hand. The difference being it is a lot safer for everyone to keep all of the shares in one place.
      - pittkid102 16y ago
        Thanks guys, this helps a lot. I'll give them the real certificates if the copies, the signed vesting/exercise agreement, and a cancelled check are sufficient proof.

3 points by pittkid102 16y ago

Scott_MacGregor 16y ago

Yes, file the copies with your stock purchase/vesting agreement. Also if you have paid par value or whatever amount for the shares keep your canceled check with the copy of the shares you bought. The company keeps a list of who owns what shares as well as the physical shares. If something should happen to the physical shares they can be reissued.

dpapathanasiou 16y ago

"Management is asking for my stock certificates so that they have quick access to them in the event the company is acquired." That sounds suspicious on many levels. For one thing, they already should know exactly how much equity each employee has. If they don't have those kinds of records, then they're probably going to have a hard time passing a due diligence review by a potential acquirer.

Scott_MacGregor 16y ago
It is not suspicious on any level. They are probably doing it on advice of counsel. The actual physical shares will need to be tracked down if they go public, and if any people/shares cannot be found they will have to reissue the shares. Having all of the physical shares in one place protects everyone.
- dpapathanasiou 16y ago
  Stock certificates in private companies are not bearer-coupons (i.e., even if I get my hands on your certificate, that does not make me the owner of your shares). Furthermore, in 42 states, the board of directors can issue equity shares with a simple amendment to the the company's Operating Agreement. Finally, if the company was operating in one of the 8 states where that's not allowed, or decided to do certificates anyway, the recipients of that equity should not have had the certificates in their hands for long (i.e., they get issued, the recipient has to sign and return within a few days). So the idea that the certs are floating around out there and must be returned immediately for an acquisition is suspicious.
  - Scott_MacGregor 16y ago
    If the company issues physical shares to the employee as they vest monthly, that is 12 physical shares per employee per year. If for instance, there are an average of 10 employees over 4 years that is 480 pieces of paper that will need to be tracked down at some point in time. When the shares are needed, if even one of those people are missing and cannot be found, it adds a pain factor to the process. The physical shares need to be consolidated and accounted for at some point in time. Not everyone leads a stable life where they can be located at all times. For the employee to physically hold the actual physical share in his or her hand is of no greater benefit than holding a photocopy of the shares along with the vesting agreement and any canceled checks used to pay for the shares. Physical shares can be forged just as easily as a photocopy if it were to go before a judge. It is like having 1 dozen green apples, vs. 1 dozen red apples in your hand. The difference being it is a lot safer for everyone to keep all of the shares in one place.
    - pittkid102 16y ago
      Thanks guys, this helps a lot. I'll give them the real certificates if the copies, the signed vesting/exercise agreement, and a cancelled check are sufficient proof.