Disadvantages of Issuing a Share Certificate

There are several disadvantages of issuing a share certificate.

From the company's perspective, the primary drawback comes down to time and money. Issuing paper stock certificates is labor-intensive and represents a big expense. In fact, businesses usually need an entire team dedicated strictly to managing the share certificate system.

There is a tremendous amount of tedious clerical work involved in maintaining a stock certificate system. For example, all transactions, such as a merger or spinoff, can only proceed when the paper certificates are signed and mailed to the company. Also, compliance becomes much more difficult to address.

Moreover, ownership is very difficult to keep up with, as shareholders can pass the certificates to someone else without notifying the company. It all adds up to a significant amount of back-office work to verify identities in order to sign off on the transfer of ownership. In other words, the company has to keep track of the shares at all times. This is typically done through a computer system.
Finally, if a shareholder has their paper certificate lost or stolen, it means a lot of work for the company. Specifically, the business has to find the old shares, verify ownership, put a "stop" on the paper certificates, and then issue new paper certificates. Obviously, this process is also a headache for the shareholder.

The bottom line is that documenting, tracking, and verifying transactions with paper stocks is very challenging.