Taking security over shares
Taking security over shares

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Taking security over shares
  • Taking security over shares—what is secured?
  • Types of shares
  • Registered shares
  • Bearer shares
  • Relevant types of security
  • When is a legal mortgage of shares appropriate?
  • Moral Hazard under the Pensions Act 2004
  • When is an equitable mortgage or charge of shares appropriate?
  • PSC Register
  • more

Shares are commonly offered as security for a loan.

In commercial lending transactions, shares are typically offered as security:

  1. as part of a package of security over the whole of a company's assets (see Practice Note: Key features of debentures)

  2. where the borrower is a special purpose vehicle and the lender wants to have the ability to take control of the borrower and its whole business on enforcement (see Real Estate Finance—overview, Practice Note: Security in project finance transactions and Practice Note: Security and guarantees on acquisition and finance transactions), or

  3. for stamp duty or other tax reasons (see Practice Note: What does stamp duty apply to?)

This Practice Note explains the key issues that arise when taking security over shares. In particular it considers:

  1. the types of shares that may be secured

  2. the relevant types of security used in respect of shares

  3. key terms of the relevant security documents, and

  4. perfection and priority of security over shares

This Practice Note focuses primarily on taking security over certificated shares. For detailed information on taking security over uncertificated shares, see Practice Note: Taking security over uncertificated shares held in CREST.

Taking security over shares—what is secured?

A share is an intangible asset and is sometimes described as a 'bundle of rights and obligations'. The rights and obligations are determined by the Companies Act 2006