When investors buy shares of stock, they typically don’t take physical possession of the actual ownership certificates for various reasons, including safety and expedience. Instead, the buyer becomes the beneficial owner of the shares while they remain registered to the brokerage firm that manages the transaction. This status is sometimes referred to as the investor registering the shares in "street name." While seldom acknowledged, beneficial ownership is the most common method of holding shares.
According to the Securities Exchange Act, the beneficial owner holds the voting power and the authority to decide whether to sell it. The beneficial owner receives the benefits of owning the stock, such as any dividend. In addition, beneficial ownership provides efficiency for trading (imagine if the investor had to physically transport their shares of a hot stock to an exchange or even to a broker to complete a sale before a price change). The advantages also include the decreased risk of not needing to secure physical stock certificates. It’s possible that a beneficial owner may experience a slight delay in receiving communications regarding the stocks, but that has become less of a concern with technology and the proliferation of information.
What Rights Do You Get from Owning Stock in a Company?
Some companies sell stock to raise money and use that money to fund their operations. For example, an emerging business might need money to grow or expand, while a more mature organization might want to pay off debt or restructure. The first step for a company that wants to sell a stock is an initial public offering or an IPO. A private company issues stock to the public, which can now become part owners of a business. The process of "going public" may allow the early employees, founders, and private investors to recoup or benefit from their investments in the venture.
The shares of stock that an investor buys represent their proportionate share of the company and the accompanying profits, if applicable. In most cases, stocks are traded (or exchanged) on a stock exchange since they are held by an intermediary and sold by one investor to another.
Does a Beneficial Owner Have Voting Rights?
Every owner of common stock has voting rights, but some companies also have a separate category called preferred stock, which typically won’t include voting rights. However, the preferred stock may offer a higher, guaranteed dividend than the common stock shares, plus priority repayment if the company founders.
As a beneficial owner, the investor will typically receive information about voting from their brokerage or other financial intermediary. The firm, which is the registered owner of the shares, will cast your proxy vote on your behalf. In contrast, a registered owner would receive the proxy and instructions directly from the company.
Aren’t Old Stock Certificates Valuable?
According to the U.S. Securities and Exchange Commission, it’s possible that if you have an old hard copy of a stock certificate, it may be worth some stock in the company that the certificate represents (or a successor company, depending on the merger and acquisition history). The simplest course of action to find out is to contact your existing broker, if you have one, or dig into the public library to locate any information about the company or the transfer agent that issued the stock.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.