Legal Definitions - stock power

A stock power is a legal document that grants a person, other than the actual owner of a security (such as a stock or bond), the authority to legally transfer its ownership to another party. It functions like a specialized power of attorney, specifically designed to facilitate the change of ownership for investment securities without requiring the owner's direct signature on the security certificate itself.

Here are a few examples to illustrate how a stock power is used:

• Estate Settlement: When a person passes away, their investment portfolio, including stocks and bonds, becomes part of their estate. The executor of the estate is responsible for distributing these assets according to the will. For instance, if Mr. Henderson's will stipulates that his shares in Tech Innovations Inc. should go to his daughter, the executor, Ms. Chen, would use a stock power. This document authorizes Ms. Chen (a person other than the deceased owner) to transfer the ownership of the Tech Innovations Inc. shares from Mr. Henderson's estate to his daughter (the new owner), ensuring the smooth settlement of the inheritance.

• Gifting Securities: An individual might wish to gift shares of stock to a family member or a charitable organization. If Ms. Rodriguez wants to donate 500 shares of her publicly traded company stock to a local charity, but she holds the physical stock certificates, she might use a stock power. She could sign a stock power, authorizing her financial advisor, Mr. Lee, to handle the transfer. This document allows Mr. Lee (a person other than the owner) to transfer the ownership of the 500 shares from Ms. Rodriguez to the charity (the third party), simplifying the gifting process for her.

• Brokerage Account Transfers: Sometimes, an investor might hold physical stock certificates and wish to deposit them into a new brokerage account or sell them through a broker. For example, if Mr. Davies has a certificate for shares in Global Energy Corp. and wants to sell them through his new brokerage firm, he might provide a stock power to his broker. This authorizes the brokerage firm (a person or entity other than the owner) to transfer the ownership of the Global Energy Corp. shares, either to the brokerage's nominee account for sale or directly to a buyer, without Mr. Davies needing to endorse the physical certificate himself.