A Holder of Record is an individual or entity listed as the official owner of securities, such as stocks or bonds, on the books of the issuing company or its designated transfer agent as of a specific date. This designation is crucial in laying down the rights to receive dividends, voting rights, and other shareholder privileges.
Importance of the Holder of Record
The concept is essential for investor and corporate governance, particularly for the distribution of dividends, exercising voting rights during shareholder meetings, and other corporate actions.
Record Date and Dividend Declarations
Dividend Declarations always specify payability to holders of record as of a particular date known as the Record Date. The record date is a cut-off date set by the company. Those who are recorded as shareholders on this date are entitled to receive the declared dividend, even if they sell the security before the payment date.
Transfer Agents
A transfer agent is a third-party organization that maintains records of who owns a company’s securities. They handle changes in ownership, issue certificates, and deal with lost or stolen certificates.
Example
If a dividend is declared on January 15, payable to holders of record as of January 25:
- Any transactions executed up to the close of business on January 25 determine the holders of record.
- The entity recorded as the holder on January 25 is entitled to receive the dividend.
Historical Context
Historically, maintaining and updating the records of securities ownership was a meticulous and labor-intensive process, often managed by large teams within companies. With the advent of electronic records, this task has become streamlined, ensuring higher accuracy and efficiency.
Related Terms
- Record Date: The date by which a shareholder must be on the company’s books to be eligible for dividends and voting rights.
FAQs
Q: What happens if I buy shares after the record date?
A1: You will not be eligible to receive the dividend declared for the record date preceding your purchase. You must own the shares before the record date to be listed as a holder of record.
Q: Can the record date and payment date be the same?
A2: Typically, the record date precedes the payment date to allow time for administrative processing, though it varies by company policy.
Summary
The Holder of Record is a critical designation in finance, ensuring proper distribution of dividends, rights to vote, and participation in other corporate actions. It is determined by who appears on the company’s books or those of a transfer agent as of a specific cutoff date. Understanding this concept is vital for anyone involved in securities ownership and corporate governance.
