Do I need a stock certificate as proof of my ownership?
DefinitionStock is a legal invention that represents ownership in a company. Shares are portions of stock that allow a company to grant ownership to a variety of people or other companies in flexible ways. Each shareholder (or stockholder), as these owners are called, holds a specific number of shares. Founders, investors, employees, board members, contractors, advisors, and other companies, like law firms, can all be shareholders.
Definition Stock ownership is often formalized on stock certificates, which are fancy pieces of paper that prove who owns the stock.
Sometimes you have stock but don’t have the physical certificate, as it may be held for you at a law office.
Some companies now manage their ownership through online services called ownership management platforms, such as Carta. If the company you work for uses an ownership management platform, you will be able to view your stock certificates and stock values online.
Younger companies may also choose to keep their stock uncertificated, which means your sole evidence of ownership is your contracts with the company, and your spot on the company’s cap table, without having a separate certificate for it.
DefinitionOutstanding shares refer to the total number of shares held by all shareholders. This number starts at an essentially arbitrary value (such as 10 million) when the company is created, and thereafter will increase as new shares are added (issued) and granted to people in exchange for money or services.
Later, we discuss several subtleties in how shares are counted.
Definition Any shareholder has a percentage ownership in the company, determined by dividing the number of shares they own by the number of outstanding shares. Although stock paperwork will always list numbers of shares, if share value is uncertain, percentage ownership is often a more meaningful number, particularly if you know or can estimate a likely valuation of the company. Even if the number of shares a person has is fixed, their percentage ownership will change over time as the outstanding shares change. Typically, this number is presented in percent or basis points (hundredths of a percent).
Public and Private Companies
DefinitionPublic companies are corporations in which any member of the public can own stock. People can buy and sell the stock for cash on public stock exchanges. The value of a company’s shares is the value displayed in the stock market reports, so shareholders know how much their stock is worth.
Definition Most smaller companies, including all startups, are private companies with owners who control how those companies operate. Unlike a public company, where anyone is able to buy and sell stock, owners of a private company control who is able to buy and sell stock. There may be few or no transactions, or they may not be publicly known.