Stock Power

What Is Stock Power?

Stock power is a legal power of attorney form that transfers the ownership of certain shares of a stock to a new owner. A stock power transfer form usually is only required when an owner opts to take physical possession of securities certificates, rather than holding securities with a broker. A stock power form includes the previous owner's name, a description of the shares to be transferred, the stock certificates, and the cost basis of the shares. 

How Stock Power Works

A stock power usually requires a signature guarantee to protect against fraudulent transfers. A stock power form is sometimes referred to as a security power form. As mentioned, it’s generally only needed for the transfer of physically held shares, but it may also be needed to change the name on the account or add a transfer of death beneficiary. 

Stock powers can be used in secured lending transactions, where securities are used as collateral for a loan. When this happens, the stock power is signed by the borrower and delivered to the lender, but is not dated or completed. A stock power, in this instance, protects the lender’s interest, allowing them to foreclose on the shares if the loan is not repaid. 

Special Considerations

Most often, when buying or selling shares of stock, a retail investor uses a brokerage firm that will take care of any legal documentation required for the transfer of shares to the new owner. Thus, in the vast majority of cases, the owner of the shares of a stock does not take possession of the share certificates and does not have to complete legal paperwork to buy and sell shares. 

The shares are held in an electronic record with the broker's custodian eliminating the need for physical possession of the shares. However, before technology allowed records to be kept entirely electronically, physical stock certificates were the norm, and it was ubiquitous to use stock powers when transferring ownership of shares from one party to another.

Requirements for a Stock Power 

Stock powers are needed for each account and each security being transferred. All owners must sign the form and generally have their signatures guaranteed with a medallion signature guarantee. In some cases, if a stock power is too old, it might be rejected. 

If the owner of a stock is unable to complete a needed stock power form, the legal representative of that person must sign the form. This can include the Power of Attorney or custodian for someone that is incapacitated or a minor.