What Is a Stock Certificate? Private Company Shares Explained

A company issues a certificate each time it hands out shares. That happens when founders set up the company, when an employee buys shares with stock options and when an investor buys shares in a funding round. The certificate states who owns the shares, how many there are and which class they belong to, such as common stock or preferred stock. The difference between the two classes is covered in common stock vs preferred stock.

Many venture-backed companies are Delaware corporations, so this page follows Delaware law. Section 158 of the Delaware General Corporation Law (DGCL) says shares are represented by certificates unless the board decides otherwise. Any two authorized officers sign each certificate, and the signatures may be printed copies. A certificate cannot be in bearer form, meaning it always names an owner. Whoever simply holds the paper does not own the shares.

The certificate is evidence. The official list of owners is the company’s stock ledger, which feeds the cap table, the record of every share class, option and holder. Under DGCL §159, shares are personal property. They pass from owner to owner under Article 8 of the Uniform Commercial Code, the state law on moving securities.

A board can pass a resolution that makes some or all of its shares uncertificated. No paper is printed for those shares. Soon after each issue or transfer, the company sends the owner a written or electronic notice instead. The notice must carry the same facts a paper certificate would, including any limits on sale. Paper already issued stays in force until the owner hands it back.

Delaware law treats both forms the same. Holders of paper and electronic shares of the same class have identical rights. Under DGCL §224, a company may keep its stock ledger in databases, including distributed ones, the kind a blockchain uses. The one condition is that the records can be printed in clear, readable form within a reasonable time.

In practice, many private companies keep their ledger in cap table software, such as Carta. The software gives each holder an electronic certificate, logs each sale and tracks options. You usually see your certificate in an online account. It shows the same fields a paper one would.

A legend is a printed notice on the certificate that limits what you can do with the shares. Private company shares usually carry two kinds. The first is a securities law legend. It says the shares were not registered with the SEC, the US securities regulator, and cannot be resold unless they are registered or an exemption applies. Regulation D, the SEC rules many private rounds use, names such a legend as one way a company shows it took reasonable care. More detail is in our guide to Regulation D.

The main exemption for resale is Rule 144. For a company that does not file reports with the SEC, which covers most private companies, you must hold restricted shares for at least one year before relying on it. The legend stays on the certificate until the company’s lawyers agree to take it off.

The second kind is a contract legend. It points to limits set in the company’s charter, bylaws or a stockholder agreement. A common one is a right of first refusal, which lets the company or other holders buy your shares on the same terms before an outside buyer can. Under DGCL §202, such a limit binds you and anyone you pass the shares to if it is noted conspicuously on the certificate or in the notice. If it is not, it binds only a person who actually knew about it.

A private company share certificate template usually has the fields below. Law firms and cap table software keep their own forms. The company’s counsel sets the final wording, especially for the legends.

Here is how a certificate follows an employee from exercise to a sale. She holds 10,000 vested options with a strike price, the price paid per share, of $2.00. You can read about the exercise step in how to exercise stock options.

Her paper or electronic certificate never sets the price. It only proves what she owns and which limits apply. The sale itself is a secondary transaction, a trade between holders that does not raise money for the company. Many companies also buy shares back in a tender offer, and the certificate is canceled the same way.

• Treating the certificate as the only recordThe company’s stock ledger is the official list of owners. If the two disagree, ask the company to correct the ledger.
• Assuming electronic shares give fewer rightsIn Delaware, holders of the same class have the same rights in both forms.
• Ignoring the legendsA sale that breaks a right of first refusal or skips the holding period can be blocked or undone.
• Signing a transfer without the companyA transfer counts once the company records it in the stock ledger. A private agreement alone does not change the ledger.
• Losing a paper certificateIt can be replaced, but the company may ask for a bond. Keep the original safe and record its number.

Stock certificate

A signed document showing who owns a set number of shares of a given class.

Uncertificated shares

Shares with no paper certificate. The owner gets a written or electronic notice instead.

Stock ledger

The company’s official list of shareholders and transfers. It may be kept electronically.

Legend

A notice printed on a certificate that limits how the shares can be sold or transferred.

Right of first refusal

The right of the company or other holders to buy your shares on the same terms before an outside buyer.

Restricted securities

Shares bought in a private sale. They can be resold only after registration or under an exemption such as Rule 144.

Common stock

The share class founders and employees usually hold. It is paid after preferred stock in a sale.

Cap table

The record of every share class, option and holder in a company.

Every rule was last checked on October 29, 2026. Corporate rules are Delaware law and apply to Delaware corporations. Securities rules are US federal rules. The worked example is invented. More on holding private shares is in our guide to private company stock.