It is 2010 and while we don’t have jetpacks, it doesn’t seem too much to ask to not have to deal with paper stock certificates. Yet most early stage deals that I see still wind up sending out physical paper certificates. While it may seem like a convenient way to push out the expense of keeping track of certificates to holders, that is not really the case. Whenever a transaction takes place that requires the certificates, such as a secondary sale or an exit, there are people who can’t find theirs (not surprising, this is often 5-10 years later). That causes delays, stress and legal work at the time of the transaction. Generally, people don’t want to punish their early stage investors for having lost or misplaced the certificates and so the solution winds up being that investors sign an affidavit of loss. I believe it would a be net cheaper and more convenient for everyone if company counsel just maintained a stock register without issuing certs. If a company gets sufficiently large – in terms of revenues and number of owners – that job can be handed over to a custody service. Would love to know if there are any compelling reasons for carrying on with paper certificates!
