Legal Definitions - stock/bond power

A stock/bond power is a separate, standalone legal document that authorizes the transfer of ownership of a specific stock certificate or bond. Instead of endorsing (signing the back of) the actual certificate, the owner signs this separate document, which then grants the authority to transfer the security to another party. It is often used for convenience, security, or when the certificate itself is not readily available for endorsement.

This document ensures that the transfer can occur even if the physical certificate is held in a secure location, is lost, or is being held by a third party (like a brokerage firm). It acts as an instruction to the issuer or transfer agent to record the change in ownership.

• Example 1: Gifting Shares to a Family Member

  Sarah wants to gift 100 shares of TechCo stock to her niece, Emily. Sarah keeps her physical stock certificates in a safe deposit box at her bank. Instead of retrieving the certificate, signing it, and then sending it to a transfer agent, Sarah can sign a separate stock power. This document, along with instructions to her brokerage firm, authorizes the firm to transfer the 100 shares from her account to Emily's account, without Sarah ever having to physically handle or endorse the original certificate.

  How it illustrates the term: Sarah uses a stock power as a convenient and secure way to authorize the transfer of shares without needing to physically endorse the stock certificate itself, which remains safely stored.

• Example 2: Transferring Bonds During an Estate Settlement

  After Mr. Henderson passed away, his executor, Maria, needed to distribute his investment portfolio to his beneficiaries. Among his assets were several municipal bonds held electronically by a brokerage firm. To transfer these bonds from Mr. Henderson's estate account to the individual beneficiary accounts, Maria, as the executor, would execute a bond power for each bond or group of bonds. This document provides the brokerage firm with the necessary legal authority to re-register the bonds in the names of the beneficiaries as per the will.

  How it illustrates the term: The bond power allows the executor to legally transfer ownership of bonds that are not in physical certificate form, or are held by a third party, by providing a separate authorization for the transfer.

• Example 3: Pledging Securities as Collateral for a Loan

  A small business owner, David, needs a short-term loan and decides to use some of his publicly traded company shares as collateral. His stock certificates are held by his investment advisor. To secure the loan, David signs a stock power, which he then provides to the bank. This stock power authorizes the bank to take possession of or transfer the shares if David defaults on the loan, without requiring David to physically endorse the certificates at the time of the loan agreement.

  How it illustrates the term: David uses a stock power to grant conditional authority to transfer his shares, serving as a security measure for the lender, without needing to physically sign the actual stock certificates.