How to Sell Stock Certificates: A Comprehensive Guide

Holding physical stock certificates might seem like a relic of the past, but they represent actual ownership in a company. If you’ve inherited or possess these paper documents, you might be wondering how to sell them. Unlike shares held electronically in a brokerage account, selling stock certificates requires a more deliberate process. This comprehensive guide will walk you through each step, ensuring you understand your options and navigate the sale successfully.

Understanding Stock Certificates

Before diving into the selling process, let’s clarify what a stock certificate is. It’s a physical document that proves your ownership of a specific number of shares in a company. These certificates were common before the rise of electronic trading. Today, most stock transactions are digital, making physical certificates less common. If you have one, it might be from an older investment, an inheritance, or a gift.

Key Differences: Physical vs. Electronic Shares

• Physical Certificates: These are paper documents that need to be physically handled for transfer.
• Electronic Shares: These are recorded in digital format in a brokerage account, allowing for easier trading.

The main challenge with selling physical stock certificates is that they need to be converted to electronic format before a sale can take place. This involves a process called “dematerialization”.

Step-by-Step Guide to Selling Stock Certificates

Here’s a detailed breakdown of the process to sell your stock certificates:

Step 1: Identify the Issuer (Company) and Shares

First, carefully examine the stock certificate itself. You need to identify the following:

• Company Name: The full name of the company that issued the shares.
• Number of Shares: The exact number of shares the certificate represents.
• Type of Stock: Whether it’s common or preferred stock.
• Certificate Number: A unique identifying number for the specific certificate.

This information is crucial for the next steps. Make sure you can clearly read all details. If the certificate is damaged or faded, proceed with caution and potentially seek professional advice early on.

Step 2: Determine if the Company Still Exists and is Publicly Traded

It is essential to verify the current status of the company. Things to check:

• Still Operating: Search online to see if the company is still in business. If the company was acquired by another, it may have undergone a stock conversion or change in procedures for share holders.
• Publicly Traded: Use resources like Google Finance, Yahoo Finance, or Bloomberg to see if the company is still publicly traded on a stock exchange. If it is, note its ticker symbol.
• Private Company: If the company is no longer publicly traded, it might be a private company. Selling these shares might be more difficult and involve finding private buyers or going through a transfer agent.
• Company Merger or Acquisition: If the company no longer exists under the name on the certificate, it may have merged or been acquired by another company. Research the history of the company to determine its current status.

If the company no longer exists or went bankrupt, your shares may be worthless. It’s important to do due diligence to understand your situation.

Step 3: Locate the Transfer Agent

The transfer agent is a crucial party in this process. They are responsible for maintaining records of stock ownership and facilitating transfers. You will need to contact them to dematerialize the shares. Follow these steps to find the transfer agent:

• Company Website: Check the investor relations section of the company’s website. They usually list the transfer agent’s contact information.
• Company SEC Filings: Check the company’s SEC filings, particularly their 10-K or 10-Q reports, for transfer agent information.
• Contact the Company Directly: If you can’t find the information online, contact the company’s investor relations department and ask for the transfer agent’s contact details.
• General Transfer Agent Databases: Search online using terms like “transfer agent database” or check databases from reputable sources like the Securities Transfer Association.

Common transfer agents include Computershare, EQ (formerly Equiniti), and American Stock Transfer & Trust Company (AST). Once you find the transfer agent, record their name, address, phone number, and any other contact information.

Step 4: Contact the Transfer Agent and Initiate Dematerialization

Now it’s time to contact the transfer agent and start the dematerialization process. This is where you convert your physical certificates to electronic shares. Prepare to provide the following information when you contact them:

• Your Name and Contact Information: Be prepared to provide your name, address, phone number, and email address.
• Company Name and Ticker Symbol: Provide the full name of the company and, if applicable, its ticker symbol.
• Certificate Number: Provide the certificate number exactly as it is written on the certificate.
• Number of Shares: Specify how many shares the certificate represents.
• Proof of Ownership: You will likely need to provide a copy of the original certificate, a government-issued photo ID, and other documents to verify your identity and ownership.

The transfer agent will provide you with the necessary forms and instructions. The specific forms and procedures can vary between agents, so carefully follow their guidelines. Typically, this includes:

• Medallion Signature Guarantee: This is a special guarantee required by transfer agents to verify the authenticity of your signature. You will need to visit a bank, credit union, or brokerage firm that participates in a medallion signature program. A bank employee will verify your identity and witness you sign the transfer forms, placing their “guarantee” on your paperwork.
• Submission of the Original Certificate: You will be required to send the original certificate to the transfer agent. It’s recommended to send it through registered mail or a secure courier service and keep a copy for your records.
• Account Setup: You will likely be required to establish a direct registration account with the transfer agent. This is a record-keeping system for the electronic shares, sometimes called a Direct Registration System (DRS) account.

Step 5: Open a Brokerage Account (If Required)

If you do not have a brokerage account, you will need to open one to sell the shares once they are dematerialized. Consider these factors when selecting a broker:

• Fees and Commissions: Different brokers charge different fees for trading. Compare commission rates and account maintenance fees.
• Minimum Account Balance: Some brokers require a minimum account balance.
• Trading Platform: Select a broker with a user-friendly trading platform and reliable customer service.
• Account Types: Decide if you need a taxable account or a tax-advantaged account, such as an IRA.

Once your brokerage account is opened, you will need to provide your brokerage information to the transfer agent so that the shares can be transferred there.

Step 6: Transfer Shares to Your Brokerage Account

Once the transfer agent has successfully dematerialized your shares and set up your direct registration account, you will need to initiate the transfer of shares to your brokerage account. This involves providing your brokerage account information to the transfer agent. Specifically, this includes the brokerage firm name, account name, account number, and any other information that the agent requires. They will then complete the electronic transfer process.

Step 7: Sell Your Shares

Now that your shares are in your brokerage account, you can proceed to sell them like any other stock. Log into your brokerage account and enter the ticker symbol of the stock. Input the number of shares you want to sell and the type of order you prefer (market order, limit order etc.). After the trade is complete, the cash will appear in your brokerage account. Remember to consider any tax implications from your stock sales.

Step 8: Consider Tax Implications

Selling stock may have tax consequences. Consult with a tax professional to understand how capital gains or losses may impact your taxes. Consider these points:

• Capital Gains Tax: If you sell the stock for more than you acquired it for, you will incur a capital gain and may owe taxes.
• Capital Loss: If you sell for less than you acquired it for, you will incur a capital loss that may be used to offset other capital gains.
• Holding Period: The length of time you hold the stock before selling affects the tax rate. Short-term capital gains (held for a year or less) are taxed at your ordinary income tax rate, while long-term capital gains (held for more than a year) are taxed at a lower rate.
• Cost Basis: You’ll need to know the original purchase price of the stock to calculate gains or losses. If you do not know the purchase price, a tax professional can assist in methods to determine this.

Potential Challenges and Considerations

Selling stock certificates can be a more complicated process than selling electronic shares. Be aware of these potential challenges:

• Time: The process of dematerialization can take several weeks or even months. Be patient and be prepared for delays.
• Fees: Transfer agents often charge fees for their services, such as dematerialization, processing, and transfer fees. Be sure to inquire about these upfront. Brokers may charge commissions on stock sales.
• Lost Certificates: If your certificate is lost, stolen, or damaged, you will need to go through a specific process to obtain a replacement, which can be lengthy and costly.
• Inactive Companies: Selling shares of a privately held company may be more complicated than a publicly traded company.
• Medallion Signature Guarantee: Getting a medallion signature guarantee may require visiting a financial institution, sometimes multiple times.
• Inherited Certificates: If you inherited the certificates, you may need to prove your right to the shares through probate documents.

Alternatives to Selling

Depending on your situation, you might consider these alternatives:

• Gifting: Instead of selling, you could gift your stock certificates to a family member or a charity.
• Retaining: You could choose to keep the certificates as a historical artifact, especially if they are from a notable company or have sentimental value.
• Donating: You can donate the shares to a charity.

Conclusion

Selling stock certificates requires a methodical approach and patience. By following the steps outlined in this guide, you can navigate the process effectively. Remember to keep detailed records of your communication with the transfer agent, your brokerage account, and all associated documents. Seeking advice from a financial or tax professional when needed can also ensure a smoother and more successful transaction. While it can be a more lengthy procedure than trading electronic shares, it is a process that is manageable when broken into these steps. With this guide you will be able to successfully convert your paper certificates into cash. Understanding each step will reduce the time and effort it will take you to sell your shares.