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I am trying to understand the difference between "book entry ownership" of shares, and being the "holder of record" of shares. Apparently, the distinction is important in answering this question: Is it possible to own more than 100% of outstanding shares?

When do I have "book entry ownership" of shares, and where is this information recorded? When am I the "holder of record" of shares, and where is this information recorded? Which one determines the "real" owner of the shares? Please help me understand the difference between them, and the significance of each of them.

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A holder of record is the owner in the internal records of the company that is owned. Those records are usually maintained by a stock transfer agent. Due to the costs and the risks associated with being in possession of physical shares, most people own shares in book-entry form. These are also called "street name securities." The shareholder of record is the brokerage firm, bank, or trustee that the owner has an account with.

If party A is a Merril Lynch customer and sells 100 shares of ABC and the buyer happens to be a customer of Merril Lynch, then the holder of record does not change but the book-entry owner does change.

Although it is technically possible for anybody who is the holder of record to loan shares to anybody else, it isn't practical in any sense. It would require customized debt documents, practical collateralization methods, transfer fees and so forth.

However, owners of shares held in a margin account, as opposed to a cash account, automatically agree to allow their shares to be loaned out to others by the broker-dealer.

If you are the beneficial owner of shares at a brokerage in book entry form or if you are the owner of physical shares, you are the "real" owner. With that said, if a short seller borrowed the shares and sold them to you, then both you and the original owner are the true owner of the exact same shares.

If that original owner then decided to sell the shares, either the broker would need to find someone else to borrow shares from or the borrower would have to repay the shares. That is the reason for the short squeeze with GME shares. The small buyers were not selling their shares and some may have had cash accounts. Their individually small purchases were upsetting the applecart because they were adding demand while removing supply.

Securities are somewhat unique in that if you demand shares and buy them, then you become a supplier of shares. Likewise, once you sell shares, you may then become a later demander of the same shares.

An accounting issue does happen when more shares are claimed than exist. What happens when dividends are declared? Who gets them?

The practical solution is that brokers require short sellers to make up all lost dividends to borrowers. Plus, since dividends are taxed at a different rate than interest, they must pony up the tax money for the new owner so they can pay the additional amount to the IRS.

As a result, if you hold shares at a broker, you may receive interest in lieu of dividends in an amount marked up to cover the highest tax rate. If you are not a high income person, then you may make an additional profit.

The holder of record is the legal owner of the shares. Shares held in street name are the beneficial owners but hold a legal claim to them via their account agreement. Instead, their ownership record appears as a notation on the broker-dealer's internal bookkeeping records.

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  • In the answer by Bob Baerker in the question I linked to, he says: "The owner of the shares (A) is the holder of record. When these shares are loaned out for shorting by (B), the original owner has book entry ownership but he is no longer the holder of record ..." How is it possible to have book entry ownership, but not be the holder of record?
    – Flux
    Apr 8 at 23:14
  • @Flux we can use the GME example, short sellers had shorted 140% of the shares. That means that for every 100 shares, there were 240 shares in the accounts of various owners. If I loan shares, and everybody with a margin account agrees to loan out their shares, you have a claim on those shares but they are not in your name anymore. If you loan somebody money, say cash, and hand it to them, then you no longer are the owner of that money. However, you have a note for the money. Apr 9 at 4:17
  • @Flux when your shares are loaned out, you are never told. They remain, for accounting purposes, in your account. If they are in an account holder of the same firm, then they are also in their account. Your broker loaned them out on your behalf. Nonetheless, your name never appears in company records in either case. Just the broker's name is in their records. Apr 9 at 4:19
  • @Flux for a private individual, you are only the owner of record if you physically hold the certificates. That is the only case that happens. Apr 9 at 4:20
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    @Flux if you can find an attorney to create the documentation for you, find mutually agreeable and legal collateralization arrangements, and some form of workable enforcement mechanism, and if you can find anybody that really doesn't want to use the no cost, prebuilt system and wants to negotiate with you, then yes you can. Apr 11 at 23:16

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