If you need to provide collateral for a debt, you may consider a share pledge agreement. Under such an agreement, the shareholder pledges stock as a security interest for a promissory note. If the shareholder defaults on the debt, the creditor is authorized to take ownership of the stock.
Share Pledge Agreement
A share pledge agreement outlines the details of the pledge of stock to secure a promissory note. A promissory note is a legal instrument that details the amount and terms of the debt. The share pledge agreement identifies the shareholder, the creditor, the principal amount of the debt, the type of stock pledged and the amount of stock.
Security Interest
The creditor's security interest in the stock remains as long as the debt is outstanding. During this period, the shareholder can exercise any voting rights associated with the stock. If the shareholder pays the debt or otherwise fulfills his financial obligations, the security interest is discharged. However, if the shareholder defaults on the debt, the creditor can take the stock from the shareholder.
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Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.