Background

Almost every publicly traded company in the United States still issues paper stock certificates, even though paper certificates are much more expensive to handle and keep safe than electronic share ownership records. Even if companies also issue shares electronically through the national Direct Registration System, they almost always also issue paper shares.

Investors pay for the dissemination and safekeeping of all the paper certificates. And companies pay high costs for the handling of paper certificates during corporate actions such as mergers or stock splits.

Out of all the publicly traded companies in the United States, only 20 or so currently issue electronic shares exclusively. But this is about to change.

Companies have issued paper certificates because they were required to do so by state laws. However, only one state— Arizona— now has that requirement on its books. Other states have taken action. Delaware, where more than half of all publicly traded U.S. companies are incorporated, updated its laws on paper certificates in May 2005. Other states with similar statutes—Missouri and Louisiana—have also updated their laws.

Going All-Electronic

What this means that almost all U.S. companies no longer have to issue their common stock as paper certificates. They can use the far more efficient, safer and cheaper Direct Registration System. It allows companies or their transfer agents to issue shares and keep ownership records electronically.

For many companies, however, eliminating paper certificates and creating electronic shareholding is a big challenge and a step into uncharted territory.

A Guide for Companies Planning to Eliminate Paper Stock Certificates

To make that challenge easier, we offer step-by-step instructions on how to do away with paper certificates and move to a totally electronic shareholding environment. The following material is taken from the Securities Industry Immobilization and Dematerialization Implementation Guide, published in 2004 by the Securities Industry Association.