What Is a Stock Power and How Is It Used for Transfers?

A stock power is a legal document that facilitates the transfer of ownership for physical stock certificates. It is used when directly endorsing the physical certificate is impractical or when security concerns require separating the transfer authorization from the certificate itself. This document streamlines the process of moving ownership rights from one party to another.

Defining a Stock Power

A stock power is a standalone legal instrument that grants authority to transfer the ownership of a specific number of shares. It enables a transfer agent or broker to process the change of ownership without requiring a signature directly on the back of the original stock certificate. This document involves the transferor, the current owner, and the transferee, the new owner, with a transfer agent or broker acting as an intermediary to execute the change in official records.

Its primary advantage is its ability to separate the authorization to transfer from the physical certificate itself. This separation is important for security, as it avoids the risk of a signed certificate falling into unauthorized hands. It also offers convenience when the certificate is held in a secure location and direct endorsement is difficult.

Common Uses of a Stock Power

Stock powers facilitate the transfer of physical share ownership in several scenarios.

Gifting Shares

When an individual chooses to gift shares, a stock power allows for the legal transfer of those shares without physically endorsing the certificate. This process can also offer tax advantages, as the capital gains tax liability may shift to the recipient.

Estate Planning and Settlement

A stock power is used to transfer shares from a deceased person’s estate to their designated beneficiaries. This ensures inherited shares are legally moved into the names of the rightful heirs.

Selling Physical Shares

For the sale of physical shares, especially when the certificate is held in a secure location like a safe deposit box, a stock power enables the seller to authorize the transfer without physically accessing and signing the certificate until the transaction is complete.

Pledging as Collateral

Shares can be pledged as collateral for a loan, and a stock power is employed in such arrangements. The borrower signs an undated and incomplete stock power, which is then held by the lender, providing a mechanism for the lender to take possession of the shares if the loan terms are not met.

Changing Registration

A stock power facilitates changes in the registration of a stock certificate, such as altering the name of the owner or converting individual ownership to a joint tenancy. This document provides an added layer of security by allowing the original certificate to remain unsigned, separating the valuable certificate from the authorization to transfer it.

Completing a Stock Power

Stock power forms are available through a brokerage firm, a transfer agent, or legal counsel. These forms capture specific information necessary for a legal transfer of ownership.

Required Information

• Details about the issuer, including the company name.
• The unique certificate number of the physical stock certificate being transferred.
• The exact number of shares involved.
• Information about the new owner (transferee), including their full legal name and address.
• The date the stock power is signed.
• The original owner’s (transferor’s) signature, which must precisely match the name on the stock certificate.

A Medallion Signature Guarantee is required for validating the signature on a stock power, distinguishing it from a standard notary public seal. This guarantee is a special stamp from a financial institution, such as a bank, credit union, or brokerage firm, which confirms the authenticity of the signature and the signer’s legal authority to transfer the securities. Financial institutions that provide this service must be members of specific Medallion Signature Guarantee programs. Avoid signing the stock power until all other details are accurately filled in and it is ready for immediate use.

Safeguarding a Stock Power

Handling a stock power requires careful attention to security. Never store a signed stock power together with the corresponding physical stock certificate. If both documents are lost simultaneously, it is comparable to losing cash, as it could enable an unauthorized transfer of ownership. The signed stock power effectively grants authority to transfer the shares, making the combination of a signed stock power and the certificate a significant risk.

Signing a stock power in blank, without filling in the transferee details, should be avoided. Such a blank, signed document can be easily misused, potentially leading to unauthorized transfers. Unsigned stock powers and completed but unused stock powers should be stored in a secure location, such as a safe deposit box or a secure home safe.

A stock power should only be signed when it is prepared for an immediate transfer. This practice minimizes the window of vulnerability during which the document could be compromised.