Do corporations need paper stock certificates? No. Most states allow uncertificated shares.
The “stock certificate” or “share certificate” was historically used as proof that someone was a shareholder in a corporation. In today’s world, as companies and shareholders move toward going “paperless,” corporate laws generally allow companies to issue shares without any stock certificate at all (Del. Code Ann. tit. 8, § 158).
Most states permit uncertificated shares. Delaware lets a board of directors designate some or all shares as uncertificated by resolution (Del. Code Ann. tit. 8, § 158), and the Model Business Corporation Act, which roughly three dozen states have adopted in substantially similar form, provides that shares “may but need not be represented by certificates” (Model Bus. Corp. Act § 6.25(a)).
Companies that do not issue stock certificates have “uncertificated shares.” This means the shareholders (owners) of the company do not receive a certificate, whether paper or electronic.
In Minnesota, uncertificated shares are expressly permitted by law. Under Minnesota Statutes section 302A.417, a corporation’s shares may be either certificated or uncertificated, and unless uncertificated shares are prohibited by the articles or bylaws, a corporation may provide that some or all of its shares will be uncertificated (Minn. Stat. § 302A.417, subds. 1, 7). Subdivision 1 states that “[t]he shares of a corporation shall be either certificated shares or uncertificated shares.”
Subdivision 7 of section 302A.417 provides greater detail:
Unless uncertificated shares are prohibited by the articles or bylaws, a corporation may provide that some or all of any or all classes and series of its shares will be uncertificated shares. Such an action does not apply to shares represented by a certificate until the certificate is surrendered to the corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the new shareholder the information required by this section to be stated on certificates. This information is not required to be sent to the new shareholder by a publicly held corporation that has adopted a system of issuance, recordation, and transfer of its shares by electronic or other means not involving an issuance of certificates if the system complies with section 17A of the Securities Exchange Act of 1934. Except as otherwise expressly provided by statute, the rights and obligations of the holders of certificated and uncertificated shares of the same class and series are identical.
If your articles of incorporation or bylaws require stock certificates, and so prohibit uncertificated shares, you usually need to amend the articles or bylaws before you can start using uncertificated shares (Minn. Stat. § 302A.417, subd. 7). Your attorney can help you make those amendments.
If your attorney is incorporating a new business for you, you can ask whether uncertificated shares are allowed in your jurisdiction.
Most business owners find uncertificated shares to be more convenient. Otherwise, the business must issue new certificates every time there is any change in ownership. Uncertificated shares are generally best for business owners who want to keep things simple and avoid extra paper and legal fees.
