Pledge of shares (share pledge)
A pledge of shares gives a lender an interest in shares as collateral for a debt. Ontario’s Securities Transfer Act, 2006 lists a pledge among the transactions that count as a purchase, and Ontario’s Personal Property Security Act lets a security interest in investment property, such as shares that count as securities, be perfected by control.
In a share purchase, ask whether the lender wants a pledge of the shares being bought, in addition to or instead of security over the company’s assets. See loan covenants to expect when financing an acquisition.
How Ontario treats it
The Securities Transfer Act, 2006 defines “purchase” to include a pledge, and s. 23 says when a purchaser has control of a certificated security, for example where a registered-form certificate is delivered to the purchaser and endorsed to the purchaser or in blank. The Personal Property Security Act, s. 22.1, says a security interest in investment property may be perfected by control, and s. 23 says registration perfects a security interest in any type of collateral. Whether a given share is a security under the Act is a question for counsel.
- Ask which shares are pledged and whether certificates exist.
- Ask who will hold the certificates and any signed transfer forms.
- Ask how the pledge fits with other security the lender takes.
- This entry covers Ontario only; check the rules where you are.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of OntarioGovernmentSecurities Transfer Act, 2006, S.O. 2006, c. 8
- 02Government of OntarioGovernmentPersonal Property Security Act, R.S.O. 1990, c. P.10
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