What happens to the certificates after a stock split?

Although stock certificates are rarely used these days, they were a common form of proof of stock ownership in the past. A share certificate it is a physical piece of paper that represents ownership in a company. The certificates include information such as the number of shares owned, date of purchase and identification number.

When stock splitThe company is dividing its existing shares into multiple shares in an attempt to increase the liquidity of the shares. Currently, if you still have paper certificates, you will still be registered with the company as a shareholder of record and will receive your newly issued shares electronically.

Key Findings

A stock certificate is a physical piece of paper that represents a shareholder’s ownership of a company.
When a company undergoes a stock split, shareholders of record receive new shares for each existing share they own.
Today, these new shares are automatically issued electronically, but additional paper certificates can be requested from the issuer or transfer agent.

Why splits have virtually no effect on share certificates

Stock splits have little impact on the stock certificate holder. In most cases, when an investor purchases shares of a company, they are never actually held in paper form by the investor or their brokerage firm. Instead, the company’s shares are held electronically and are registered in the company register. transfer agent. However, investors have the right to receive shares in paper form called share certificates. If your shares are held in paper form, you will still be registered as record holder with a transfer agent.

You, as the owner of the stock certificates, will continue to own your certificates. During the separation, the company’s transfer agent will add split-adjusted shares in your records. These additional shares will be held electronically on the books of the transfer agent, and share certificates generally will not be issued at the time of the split.

When a company buys back its own shares, management sometimes includes them in the stockholders’ equity section of the balance sheet as treasury shares. This is considered a decrease in equity rather than an asset because the company cannot own shares on its own.

Example

For example, if a company has set up a 2-for-1 stock split, that would mean that for every share you currently own in the company, you will receive an additional share. If you owned 100 shares before the split, you will own 200 shares after the split. But don’t get too excited, the price per share will be halved to even things out. If those 100 shares were held in the form of stock certificates, you would keep those shares and would not be required to return the certificates. Your additional 100 shares of the company will simply be registered in your name by the transfer agent.

In other words, you will hold 100 shares in the form of a physical share certificate, and another 100 shares will be held electronically with the transfer agent. If you want to receive an additional 100 shares in paper form, you simply need to ask the transfer agent to send you the share certificates. Likewise, if you want to convert your paper certificates into electronically represented shares, you can exchange them with a stock broker.

Bottom line

The only thing that happens to your stock certificates in a stock split is that each individual certificate is smaller than before, but you receive additional shares that are transferred to you electronically. There is no need to send certificates back or tear them in half to sell. Companies strive to make stock splits as easy as possible for investors.