What is a Stock Assignment Separate from Certificate?

I recently introduced a client to the document called a Stock Assignment Separate from Certificate. While well-known to business lawyers, this document is not known to most business owners.

The client was implementing employee and management stock plans. To provide stock for the plans, the corporation was going to repurchase shares from the founders.

The CFO asked whether and how the founders should complete and sign the assignment provision on the back of their share certificates.

I pointed out the following:

• It is important to have a clear audit trail of any time shares are transferred from one shareholder (in this case, a founder) to another (in this case, the corporation, itself).
• The audit trail is difficult to follow if the transferee and the number of shares transferred are written on the back of the share certificate.
• The audit trail is easier to follow if the information is provided, instead, on a separate document.
• That separate document, which is associated with the applicable share certificate, is called a Stock Assignment Separate from Certificate.
• That audit trail is set forth in a corporation’s Stock Transfer Ledger.

A Stock Assignment Separate from Certificate frequently is used with restricted stock. Please see Rewarding Key Personnel: Restricted Stock or Options?

A sample Stock Assignment Separate from Certificate is available, at no charge, on this blog’s Downloads page.

Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.