Stocks are goods or merchandise kept on the premises of a business and available for sale or distribution. It is a valuable asset that could be used anytime. A pledge is a promise of a person to another person and a thing that is given as security for the fulfillment of a contract or the payment of a debt and is liable to forfeiture in the event of failure.
Stock pledge is then the transfer of stocks against a debt. The owner pledges the stocks as an asset against the amount of money taken from a lender and promises to return the amount. It is an agreement that the creditor must return the stocks to the owner when he or she is able to pay the money and the agreement is then stand void. Also the owner or debtor holds all the rights to the stocks until the default or the expiration of the deadline. He or she is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, adverse claim, security interest, option or other charge or encumbrance, except for the security interest created by this Agreement. However, if the owner is not able to pay, the lender is authorized under the law to auction the stocks or simply sell them to retrieve the due. Also, each party should have a copy of the stock pledge document to ensure that both parties is aware of any consequences if anything that is not favorable happen.
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_____________, referred to as OWNER, and _____________, referred to as CREDITOR, agree:
OWNER is indebted to CREDITOR in the sum of $_______(____________ _________&___/100 dollars) for unpaid balance for purchase of the stock;
to secure repayment of the debt, OWNER pledges to CREDITOR ______ shares of ______ stock of __________________.
OWNER agrees to execute all necessary documents to perfect the pledge.
So long as OWNER is indebted to CREDITOR, the CREDITOR shall have the right to vote the shares.
CREDITOR shall be entitled to any dividends, and CREDITOR shall credit the debt with the amount of the dividends collected. CREDITOR may optionally reinvest the dividends, and any shares so purchased shall be subject to the pledge.
If OWNER is current in the obligation underlying this pledge, CREDITOR will release portions of the pledged stock as follows:
$______(_______________&____/100 dollars) per share.
This review list is provided to inform you about this document in question and assist you in its preparation. Stock pledges are customary vehicles to provide lenders with liquidity should a loan go bad, should your stock be publicly traded. It provides some comfort, in any event, even with private stock. There is substantial risk in making a stock pledge because, if the loan goes bad, the stock can be sold at an inopportune time for a publicly traded stock and at a severely discounted price if it is in a private company. For the lender, stock pledges are a very valuable commodity for the same reasons they are problematic for the prospective debtor.
1. Make multiple copies. Give one to each party. Keep the paperwork in the related files.