Legal Definitions - certificated security

A certificated security refers to an investment interest that is represented by a physical document, such as a paper stock certificate or a bond certificate. This tangible document serves as the official proof of ownership or entitlement to the investment, and its transfer typically requires the physical delivery and endorsement of the certificate itself.

• Example 1: Stock Certificate for a Family Business
  Imagine a grandparent gifting their grandchild 50 shares of a small, privately held family business. Instead of simply updating an electronic record, the company's transfer agent issues a beautifully printed physical stock certificate, complete with the company's seal and the grandchild's name as the owner. This certificate is then physically handed to the grandchild.

  Explanation: In this scenario, the physical stock certificate itself is the certificated security. It is the tangible proof of ownership of the 50 shares, and its existence and physical transfer are central to establishing and transferring that ownership.

• Example 2: Municipal Bond Certificate
  An individual invests in a new bond offering from their local city government to fund a public park project. Rather than holding the bond electronically through a brokerage, the investor opts to receive a physical bond certificate. This certificate details the bond's face value, the interest rate the city will pay, and the maturity date when the principal will be repaid.

  Explanation: The physical bond certificate is the certificated security. It is the document that legally represents the city's debt obligation to the investor and the investor's right to receive interest payments and the principal amount at maturity.

• Example 3: Limited Partnership Interest Certificate
  An investor decides to put money into a real estate development limited partnership. As part of the investment, they receive a physical certificate that clearly states their percentage ownership in the partnership, outlines their rights and responsibilities as a limited partner, and is signed by the general partner.

  Explanation: Here, the physical certificate representing the limited partnership interest is the certificated security. It is the formal, tangible document that establishes the investor's stake and legal rights within the partnership, distinguishing it from an interest that might only exist as an entry in a digital ledger.