The term “holder of record” refers to the individual or entity whose name is registered as the owner of a security in the records of the issuing company. This designation is crucial as it confers specific rights, benefits, and responsibilities to the holder.
Definition and Concept
A holder of record, also known as a shareholder of record, is officially noted in a company’s books as being in possession of security, such as stocks or bonds. This record-keeping is typically managed by a transfer agent or the company’s registrar.
Rights and Responsibilities
Rights:
- Dividends: Holders of record are entitled to receive dividends on the securities they own.
- Voting Rights: They have the ability to vote on corporate matters during annual general meetings (AGMs) or special meetings.
- Corporate Actions: Holders of record receive information and benefits from corporate actions, such as stock splits, rights issues, and buyouts.
- Reports: They gain access to annual reports and other key company documents.
Responsibilities:
- Compliance: Ensuring their contact information is up-to-date for accurate communication.
- Tax Obligations: Reporting and paying taxes on dividends and other income derived from securities.
Importance of the Holder of Record
Being the holder of record is significant for several key reasons:
- Eligibility: Only holders of record on specific “record dates” are eligible for dividends and voting.
- Ownership Verification: It’s a means of verifying and legitimating ownership and participation in corporate governance.
- Legal Protection: Provides legal standing in case of disputes or litigations related to securities ownership.
How it Works
- Issuance: When a security is issued, the holder of record is registered in the company’s books.
- Transfer: When securities are bought or sold, the transfer agent updates the holder of record to reflect the new ownership.
- Record Date: The issuer sets a record date to determine which shareholders are entitled to receive dividends or vote.
Examples and Applications
For instance: If Company X declares a dividend on February 1, stating that the record date is February 15, only those who are holders of record on February 15 will receive the dividend payment.
Historical Context
The concept of the holder of record has evolved alongside the development of securities markets. Initially, physical certificates were used to prove ownership, but with the advent of digital securities, electronic records have become the standard.
Comparisons and Related Terms
- Beneficial Owner: An individual who enjoys the benefits of ownership even though the title is in another name.
- Nominee: An entity or person registered as the holder of record on behalf of the actual beneficial owner.
FAQs
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What is the difference between the holder of record and the beneficial owner?
- The holder of record is the registered owner in company books, while the beneficial owner is the true owner who enjoys the benefits even if not recorded officially.
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Can there be multiple holders of record for a single security?
- Typically, no. Each security is registered to a single name, but co-ownership structures are possible if allowed by the issuer.
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How often are records updated for holders of record?
- They are updated continually based on transactions and official corporate actions like dividend declaration.
References
- Investopedia: Holder of Record.
- SEC: Shareholder Rights.
- Corporate Finance Textbooks.
Summary
The holder of record plays a pivotal role in the realm of securities ownership, serving as the official registrant with specific rights, responsibilities, and entitlements. This status is crucial for identifying rightful owners for corporate actions, eligibility for dividends, and participating in company decisions. Understanding the dynamics of being a holder of record can significantly impact an investor’s decisions and interactions in the financial market.
