Protected purchaser (Securities Transfer Act)

Share buyers meet this term when they want clean title at closing. This entry covers Ontario’s Act only; check the rules where you are. Its definition has three parts, and a buyer must meet all of them: the buyer gives value, does not have notice of any adverse claim to the security, and obtains control of it. The Act counts a sale, mortgage or pledge, among other voluntary transactions, as a purchase. See hidden liabilities in a share purchase.

What the status gives

Section 70 says a protected purchaser, in addition to acquiring the rights of a purchaser, also acquires the purchaser’s interest in the security free of any adverse claim. A separate rule in s.28(6) of Ontario’s Personal Property Security Act lets a purchaser of a security, other than a secured party, take it free from the security interest if the purchaser gives value, does not know the transaction breaches a security agreement and obtains control, where the secured party does not have control.

What to ask

• What adverse claims, such as a pledge, the seller has disclosed or the buyer has been told about
• Whether the buyer will obtain control as the Act uses that word, and how
• What the buyer already knows, since notice defeats the status

See also share certificate and transfer endorsement.