What is the difference between a share pledge and a share charge?

In everyday use they mean the same thing: security over shares. Strictly, a pledge works by the lender taking possession, a charge gives the lender rights over the shares without transferring them, and a mortgage transfers title to the lender subject to a right to have it back. In New Zealand, Australia and the UK, security over shares in a private company is usually written as a share charge or share mortgage, whatever the term sheet calls it.

Who receives the dividends and votes while shares are pledged?

Usually the shareholder, until something goes wrong. Most share security lets the shareholder keep voting and receiving dividends while there is no enforcement event, though the facility may restrict dividends separately. After an enforcement event the lender can take the voting rights, direct dividends to itself and, if it chooses, use the votes to replace the board. The document sets the trigger, so the definition of enforcement event matters as much as the charge.

What happens to pledged shares if the borrower defaults?

The lender can enforce under the security document and the law of the market concerned. The usual routes are to sell the shares, using the signed transfer forms it holds, or to appoint a receiver over them. A lender may also use the voting rights to install directors and sell the business from inside the company. Whatever it realises goes to the secured debt, and any surplus goes to the next secured party or, if there is none, back to the shareholder.

Why do lenders ask for signed, undated share transfer forms?

So that they can transfer the shares on enforcement without needing the shareholder to sign anything at the time, when it may be unwilling or unavailable. The lender holds the forms with the share certificates, and the security document authorises it to date and complete them after an enforcement event. They work only if the company's constitution or articles let the transfer be registered, which is why lenders read and, where needed, amend those documents first.

// WORKED EXAMPLEWHERE THE RISK SITS

Share Pledge: What Security Over Shares Gives a Lender

Own the key to the building, and queue behind its tenants.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

A share pledge is security that lets a lender, on default, take control of a company by taking its shares, rather than seizing its assets one by one. That is its strength: the lender can sell the business as a running whole, or replace the board, with its contracts, staff and licences still in place. It is also its limit. A shareholder is paid last, so security over the shares is worth only what is left after the company's own creditors. A lender to a holding company reads the pledge together with what the operating company owes, and usually asks that company for security too.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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// 01 — WHY A LENDER TAKES THE SHARES

A lender to a holding company often has little else to take. The holding company's main asset is its shareholding in the operating company, where the earnings, the staff and the assets sit. Security over those shares gives the lender a route to the business that does not involve dismantling it. On enforcement it can sell the shares to a buyer who takes the company as it stands, or use the voting rights to appoint new directors. A sale of shares can also keep in place the things an asset sale would break, such as a licence held by the company or a contract with a key customer, unless that contract lets the counterparty walk away on a change of control.

Lenders also take share security over subsidiaries even where they hold security over the subsidiaries' assets, so that in a group restructuring they can move or sell a company without unpicking its assets.

// 02 — HOW THE SECURITY IS TAKEN AND MADE TO WORK

The document is usually a share mortgage or share charge in all three markets; pledge is the word lawyers use where the lender takes possession. In New Zealand, shares are investment securities under the PPSA and the lender usually perfects its interest by registering a financing statement on the PPSR. In Australia they are investment instruments, and a lender that has control of them, for example by holding a certificate with the ability to transfer the shares, ranks ahead of one that has only registered. In the UK, a charge over shares given by a company is commonly registered at Companies House like its other charges.

The working parts are practical. The lender usually holds the share certificates with transfer forms signed by the shareholder and left undated, so that it can complete a transfer without the shareholder's cooperation. The shareholder normally keeps the votes and dividends until an enforcement event, when they pass to the lender. And the company's constitution or articles are read for anything that would stop a transfer: a directors' discretion to refuse to register one, which the UK model articles for private companies contain, or other shareholders' pre-emption rights. Lenders commonly have such provisions amended or waived, because shares that cannot be transferred are of little use as security.

// 03 — THE EXAMPLE

A holding company, constructed for this page like every figure in it, borrows US$20m to buy a group of dental practices run through one operating company. The lender takes a charge over the operating company's shares. The operating company owes US$8m of its own: US$5m to suppliers and other unsecured creditors, US$2m to an equipment financier holding specific security, and US$1m of employee entitlements. Values are the example's. Figures in US$m.

Shares only Today Value down a quarter

Practice business, sold whole 30.00 22.50

Operating company's creditors −8.00 −8.00

Value of the shares 22.00 14.50

Holding company loan 20.00 20.00

Surplus or (shortfall) 2.00 (5.50)

Add a guarantee from the operating company, secured over its assets:

Practice business, sold whole 22.50

Equipment finance and employee claims ahead −3.00

Available to the lender 19.50

Shortfall on 20.00 (0.50)

With the shares alone, the lender stands behind every creditor of the practices, so a fall of a quarter in the business's value produces a shortfall of US$5.5m. With a secured guarantee from the operating company, the lender claims against the practices' assets directly and moves ahead of the US$5m of unsecured creditors. The business is the same; the lender's place in the queue is not.

// 04 — HOW IT DIFFERS FROM SECURITY OVER THE ASSETS

Security over a company's assets is a claim on what the company owns. Security over its shares is a claim on what is left for its owner after everyone the company owes has been paid. The gap between the two is structural subordination, and it is why a lender to a holding company with only the shares behind it ranks behind trade creditors it has not lent alongside and may not know.

The usual answer is an upstream guarantee from the operating company, secured by a general security agreement or debenture. That brings its own questions: whether the guarantee is in the company's interests, which directors must consider as corporate benefit, and, where the loan paid for the shares, whether the rules on financial assistance in the relevant market apply.

DEFINED IN ONE PARAGRAPH → · CORPORATE LENDING → · WHAT YOUR BANK HOLDS AS SECURITY →

// 05 — WHERE IT DECIDES A FILE

It decides acquisition finance, where the shares bought are often the first security the lender takes, and where the credit question is how much debt the operating company may carry ahead of it. Facility agreements commonly cap that debt and restrict the operating company's own security for the same reason. It decides the enforcement plan: a lender that expects to sell the business whole needs transferable shares, a buyer, and a view on which contracts or licences a change of control would put at risk. And it decides the reading of value, because the shares are worth the business less its debts, so the lender tests both numbers rather than one.

STRUCTURAL SUBORDINATION → · SECURITY TRUSTEE →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Personal Property Securities Act 2009 (Cth), sections 27 and 57 (compilation of 14 October 2024) — Section 27 sets out how a secured party has control of an investment instrument, and section 57 gives an interest perfected by control priority over one perfected by other means — section 02.
Companies (Model Articles) Regulations 2008 (UK), Schedule 1, article 26(5) — Gives directors of a private company limited by shares a power to refuse to register a share transfer — section 02 and the FAQ.
Companies Act 2006 (UK), section 859A — charges created by a company — Applies the 21-day delivery requirement to charges a company creates, subject to listed exclusions — section 02.

// QUESTIONS PEOPLE ASK

What is the difference between a share pledge and a share charge?: In everyday use they mean the same thing: security over shares. Strictly, a pledge works by the lender taking possession, a charge gives the lender rights over the shares without transferring them, and a mortgage transfers title to the lender subject to a right to have it back. In New Zealand, Australia and the UK, security over shares in a private company is usually written as a share charge or share mortgage, whatever the term sheet calls it.
Who receives the dividends and votes while shares are pledged?: Usually the shareholder, until something goes wrong. Most share security lets the shareholder keep voting and receiving dividends while there is no enforcement event, though the facility may restrict dividends separately. After an enforcement event the lender can take the voting rights, direct dividends to itself and, if it chooses, use the votes to replace the board. The document sets the trigger, so the definition of enforcement event matters as much as the charge.
What happens to pledged shares if the borrower defaults?: The lender can enforce under the security document and the law of the market concerned. The usual routes are to sell the shares, using the signed transfer forms it holds, or to appoint a receiver over them. A lender may also use the voting rights to install directors and sell the business from inside the company. Whatever it realises goes to the secured debt, and any surplus goes to the next secured party or, if there is none, back to the shareholder.
Why do lenders ask for signed, undated share transfer forms?: So that they can transfer the shares on enforcement without needing the shareholder to sign anything at the time, when it may be unwilling or unavailable. The lender holds the forms with the share certificates, and the security document authorises it to date and complete them after an enforcement event. They work only if the company's constitution or articles let the transfer be registered, which is why lenders read and, where needed, amend those documents first.

THE IN-TRAY · ONE MINUTE

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THE FIRST QUESTION · THE LOAN · PROTECTION

A term sheet offers three protections: a negative pledge, a quarterly leverage covenant, and monthly management accounts.

Which is likely to show deterioration first?

7 MORE ON THE LOAN · PROTECTION →WHERE DO YOU READ FROM? THE PLACEMENT →

THE GLOSSARYIN ONE PARAGRAPHShare pledge (share charge) What is a share pledge, and why does a lender take security over shares?