Sometimes known as a stock power of attorney, a stock power is a document that is utilized when registered securities are transferred from the current owner to a new owner. The data contained on the document is very similar to the information found on the back of the actual stock certificate, a fact that has lead some investors and brokers to refer to the power certificate as an assignment-separate-from certificate. The main advantage of a power certificate is that it further defines the details of the transfer of ownership, providing additional safety for both the buyer and the seller.
To some degree, a stock power functions as a limited power of attorney. The document authorizes and documents the transfer of a given security, including details about the terms of transfer. For example, a stock power could be drafted as part of the transfer of shares of stock from a parent to a child, as well as when the stock is sold to a buyer.
There are a couple of advantages of using a stock power. One has to do with the duplication of the terms of transaction. All the information that is entered on the back of the security certificate is also found on this document. In addition, other relevant details that help to establish a history of the initiation, process, and consummation of the transaction is often included in the data on the stock power. This attention to detail makes it much easier to ascertain the conditions that existed at the time the transfer was made, and can often help prevent challenges from third parties who may object to the transfer.
Another benefit of the stock power is that the detail on the document provides an increased sense of safety for both parties involved in the transaction. The nature of the document requires that all processes involved in the transaction must comply with regulations that apply in the jurisdiction where the transfer takes place. This means that the rights and privileges of both parties is defined as part of the documentation, helping to minimize the chances for either party at a later date to claim the transaction is invalid due to a lack of full disclosure of relevant information.
In situations where stock certificates are misplaced or lost, a stock power can provide evidence that the transaction did take place. The detail provided on the document can help establish when the transfer took place, the nature of the securities involved, and how many shares were included in the transaction. Thus, the document can help to clearly establish who is the rightful owner of the stocks, and allow the issuer of the securities to issue replacement certificates for presentation to that proper owner.