Meaning
Modern corporations frequently issue equity without providing physical paper documents to the recipients. These uncertificated share grants are recorded directly on the company’s electronic registry or capitalization table, where they have the same legal validity as traditional paper certificates. This electronic method streamlines the distribution of equity to founders, employees and investors.
Issuance Process
The process begins when the board of directors approves the equity allocation and authorizes the issuance. The company’s transfer agent or equity management platform then records the transaction in the electronic database and sends a notice of issuance to the recipient. This notice serves as official confirmation of ownership, providing the recipient with the necessary details regarding their shareholding without the risk of losing a physical document.
Tracking System
Maintaining these electronic records requires a reliable database to ensure accuracy. If the system fails to update, the capitalization table becomes incorrect, leading to disputes.
Administrative Cost
Using digital records greatly reduces the time and expense associated with printing, mailing and replacing physical paper certificates. This efficiency allows the company to manage its equity pool with fewer administrative hours, especially as the number of employees grows. It also simplifies the process of executing corporate transactions, such as stock splits or acquisitions, since there are no physical certificates to collect and cancel.
