Holder of Record

Introduction

When it comes to investing in stocks, understanding the various terms and concepts is crucial. One such term that often comes up is “holder of record.” While it may sound complex, it is actually a fundamental concept that every investor should be familiar with. In this article, we will delve into the meaning of holder of record, its importance, and how it affects investors in the world of finance.

What is a Holder of Record?

Before we dive into the details, let's start with a basic definition. A holder of record refers to an individual or entity that is officially registered as the owner of a security, such as stocks or bonds, in the books of the company or its transfer agent. In simpler terms, it is the person or entity whose name appears on the company's records as the legal owner of the shares.

For example, let's say you own 100 shares of XYZ Company. If your name is listed as the holder of record in the company's books, you are the official owner of those shares. This means you have the right to receive dividends, attend shareholder meetings, and exercise voting rights.

The Importance of Holder of Record

Understanding the concept of holder of record is essential for several reasons:

• Dividend Payments: As the holder of record, you are entitled to receive dividend payments from the company. Dividends are a portion of the company's profits distributed to shareholders. If your name is not listed as the holder of record on the dividend record date, you may not receive the dividend payment.
• Voting Rights: Shareholders often have the right to vote on important matters affecting the company, such as electing board members or approving mergers. As the holder of record, you have the right to exercise your voting rights. However, if your shares are held in a brokerage account or through a nominee, you may need to follow specific procedures to ensure your voting rights are exercised.
• Shareholder Communications: Companies often communicate important information, such as annual reports or proxy statements, directly to their shareholders. As the holder of record, you will receive these communications directly from the company, allowing you to stay informed about the company's activities and make informed investment decisions.

Holder of Record vs. Beneficial Owner

It is important to distinguish between the holder of record and the beneficial owner. While the holder of record is the individual or entity listed on the company's books, the beneficial owner is the person who ultimately benefits from the ownership of the security.

In many cases, the beneficial owner is not the same as the holder of record. This often occurs when shares are held in a brokerage account or through a nominee, such as a bank or a custodian. In such cases, the brokerage firm or nominee is listed as the holder of record, while the individual investors are considered beneficial owners.

For example, if you hold shares of a company through a brokerage account, the brokerage firm will be listed as the holder of record. However, you are the beneficial owner of those shares, and you have the rights associated with ownership, such as receiving dividends and voting.

How Holder of Record Affects Investors

The concept of holder of record has several implications for investors:

• Proxy Voting: When it comes to voting on important matters, the holder of record has the right to cast their vote. However, if you are a beneficial owner, you may need to follow specific procedures to ensure your vote is counted. This often involves submitting a proxy voting form to the brokerage firm or nominee holding your shares.
• Dividend Payments: As mentioned earlier, the holder of record is entitled to receive dividend payments. If you are a beneficial owner, the brokerage firm or nominee holding your shares will typically pass on the dividends to you. However, it is important to understand the specific procedures and timelines involved in receiving dividend payments.
• Shareholder Meetings: Companies often hold annual or special shareholder meetings to discuss important matters and provide updates on the company's performance. As the holder of record, you have the right to attend these meetings and vote on the matters being discussed. If you are a beneficial owner, you may need to follow specific procedures to attend the meetings or appoint a proxy to vote on your behalf.

Case Study: Holder of Record in Action

Let's consider a hypothetical case study to illustrate how the concept of holder of record works in practice:

Company ABC is a publicly traded company with thousands of shareholders. John, an individual investor, owns 500 shares of Company ABC. John's shares are held in a brokerage account with XYZ Brokerage Firm.

When Company ABC announces its annual shareholder meeting, John receives a notice directly from the company. The notice provides details about the meeting, including the date, time, and location. As the holder of record, John has the right to attend the meeting and vote on the matters being discussed.

However, John is unable to attend the meeting due to a prior commitment. In this case, John can appoint a proxy to vote on his behalf. He contacts XYZ Brokerage Firm and follows their procedures to appoint a proxy.

On the day of the shareholder meeting, the proxy appointed by John attends the meeting and casts John's votes on the matters being discussed. The proxy acts as John's representative, ensuring that his voice is heard as a shareholder.

Conclusion

Understanding the concept of holder of record is essential for investors in the world of finance. It determines who has the rights and benefits associated with ownership of a security. As an investor, it is important to know whether you are the holder of record or a beneficial owner, as this affects your ability to receive dividends, exercise voting rights, and stay informed about the company's activities.

By familiarizing yourself with the concept of holder of record and its implications, you can make more informed investment decisions and actively participate in the companies you invest in. So, the next time you come across the term “holder of record,” you'll know exactly what it means and why it matters in the world of finance.