How to replace a lost share certificate

Everyone loses things, and shareholders will sometimes lose their share certificates. By lose, we mean anything ranging from damaging or misplacing share certificates right through to having them stolen.

In this article we look at what both the shareholder and the company should do when a share certificate is misplaced. We explore why most companies seek a form of indemnity before issuing a replacement share certificate and also include a template lost share certificate indemnity for companies to adapt and use as required.

A lost share certificate is often not an issue for the company and it usually only becomes a problem for the shareholder when they (or their estate) want to sell or transfer their holding. As the shareholder’s name remains on the register of shareholders, they will still be able to vote and receive dividends without needing to produce a share certificate.

Create beautiful share certificates the easy way in Inform Direct

Create company branded share certificates the easy way. Use our free share certificate template or purchase unlimited use of one of our premium professionally-designed templates.

Start now

How to replace a lost share certificate

As soon as a shareholder realises that a share certificate has been lost, stolen or destroyed, they should contact the company secretary, or directors of the company concerned, both to report the loss and to request a replacement share certificate.  This initial contact is important, as once the company is aware of the loss this should be documented and a restriction should be placed on the certificate to prevent it from being used fraudulently.

How the company responds to a request from the shareholder for a replacement share certificate will vary from company to company and largely depends on the relationship the company has with its shareholders. Equally, if the value of the shares represented by the lost share certificate is fairly modest, the company may take a different approach than if the certificate represents a sizeable holding or significant value. That said, the company ought to be consistent in its dealings with all shareholders and companies should design and document a formal process to be followed when replacing any lost share certificate.  The steps below detail a practical process that a company might follow:

1 Verify the request for a replacement share certificate

The company should satisfy itself that the request for a replacement certificate is bona fide and comes from a genuine shareholder. Before proceeding further with a shareholder’s request, the company should make further enquiries into the circumstances surrounding the loss, ensuring that these sound reasonable and may ask the shareholder to make a further careful search for the lost share certificate before the process of issuing a replacement certificate is formally started. This initial response should be sent in writing to the shareholder, to the shareholder’s registered address (the address included on the register of shareholders).

Complications can arise, even at this early stage, if the shareholder has moved house and not advised the company of their new address.  Some companies issue new certificates to shareholders displaying the new shareholder contact address, at the time they receive a notification of a change of address. Alternatively, some companies simply endorse the old certificate with the new address.  Either way, the company should have updated the register of shareholders with the new address.

In addition to making further enquiries, as soon as the company has been made aware of the lost share certificate it should record that the original certificate has been reported missing.

2 Seek an indemnity from the shareholder

Most companies seek an indemnity – a signed statement – from the shareholder who has lost the certificate. The purpose of a lost share certificate indemnity is to protect the company from any loss arising from the use or misuse of the original certificate if it is recovered. We’ve created a template lost share certificate indemnity form that you can tailor for you own use.

3 Consider seeking a third party indemnity guarantee

If the value of the lost share certificate is significant (or may become material if the share price rises a lot), the company may feel that the existing shareholder on their own lacks the means to provide an adequate indemnity. The same may be true if the circumstances of the loss are suspicious.

Where this is the case, the company may require the shareholder to have a bank or insurance company countersign the indemnity.  For this the bank or insurance company will charge and the level of their fee will be broadly proportional to their potential financial exposure. The countersignatory agrees to indemnify the company from and against all claims that may be brought against the company as a result of issuing a replacement certificate.

Note that large share management companies, such as Equiniti and Computershare, always require the shareholder to sign a lost share certificate indemnity form. They may sometimes waive the requirement for a countersignature if the value of the lost share certificate is less than £50,000, but the shareholder should then expect to pay an additional fee to cover this uninsured risk.

Transfer or sale of shares when the share certificate has been lost

Often the lost share certificate will only have come to light because the owner wants to transfer or sell the shares. Here, the company should decide whether its procedure is to issue a replacement certificate to the registered shareholder and then process the sale or transfer using the replacement certificate or to simply accept the stock transfer form accompanied by a completed indemnity to support the share transaction.

4 Record the replacement share certificate

It’s good practice to minute in a directors’ meeting both the loss of the old certificate and the approval of the issue of a replacement certificate.

The directors or company secretary should also ensure that on any record or list of valid share certificates, the lost share certificate is marked as cancelled.  Inform Direct makes it very easy for a company to manage its active share certificates, and removes the need for a manual list. Our intelligent software maintains a full record of all the certificates the company has ever created and clearly marks which certificates are active and which have been cancelled.

5 Issue the share certificate

Having cancelled the lost share certificate and received appropriate indemnity, a replacement share certificate can be issued. When issuing a new certificate remember to give it a new (unique) number.  This is necessary because it is a replacement for the lost certificate, not a duplicate of it.  If the replacement certificate had the same number as the original it would be hard to tell the two certificates apart, if the lost certificate later reappears.

Inform Direct makes the reissue of a share certificate very easy, as it will automatically generate a unique number when used to create a replacement certificate. Refer to our guide if you need to confirm what should be included on a share certificate and look at how to produce share certificates quickly and simply using our intelligent software.

When the company sends the duly signed new certificate to the shareholder, it should also write to the shareholder to remind them to destroy or return the lost share certificate if it’s subsequently found. The company may also consider whether to impose a reasonable fee to cover the administrative burden of issuing the replacement share certificate.

 


Choose from our range of beautiful templates and create compliant share certificates the easy way

Start now

A previous version of this article was originally published on 7 August 2015.

 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

2019 Review
of UK Company Formations

Read our comprehensive review of UK company formations in 2018, year-on-year growth rates and breakdown by county. This detailed insight is provided in the form of easy to understand infographics available for sharing through social media and on your own website