Legal Question in Business Law in California

Re: loan using stock as security

It depends upon whether the stock is represented by a certificate or is held in an account.

In either case, the loan documents must include a security agreement, which can be quite simple, but must contain words granting a security interest in the particular collateral.

The security interest is then perfected. If it is in an account, I think the best security is provided by a recording a UCC-1 financing statement, sending a copy to the broker or corporation where the account is located, and if possible getting a limited power of attorney from the borrower, allowing you to sell the security and receive the proceeds upon default.

If the collateral is in the form of one or more stock certificates, have a bank officer or broker assist you in getting the certificates signed with authenticated endorsements by the borrower, then keep physical possession of the signed certificates as well as recording a UCC-1 and notifying the issuer of the shares.

This is a thumbnail description of the methods I would use; you would probably need some professional assistance in handling the documentation.