Share pledge

A seller holding a vendor note, or a lender taking share security, meets this arrangement. Shares are investment property under Ontario’s Personal Property Security Act. This entry covers Ontario only; check the rules where you are. See securing a vendor take-back with a pledge of the buyer’s shares and perfection of a security interest.

How it works in Ontario

• Attachment: the PPSA lists conditions, including a signed security agreement describing the collateral, delivery of a registered certificated security, or the secured party having control (s.11(2), subject to s.11.1); the parties can agree to postpone attachment (s.11(3)).
• Perfection: by registration, which perfects a security interest in any type of collateral (s.23), or by taking delivery of a certificated security under the Securities Transfer Act, or by control (ss.22(2) and 22.1).
• Priority: a secured party with control has priority over one without control (s.30.1(2)).

What to check or ask

Ask whether the shares are certificated, and who would hold the certificate. Check whether the articles or a shareholder agreement restrict transfer, since one condition of the issuer’s duty to register a transfer is that it does not violate a restriction imposed by statute or by the issuer in accordance with section 62 (Securities Transfer Act, s.86(1)(e)). Run a PPSA search for competing claims.