Encumbrances on shares: usufruct, pledge, co-ownership and option
An encumbrance is another person's right over some shares: a usufruct, a pledge, an attachment or a call option. Co-ownership is recorded in the same place even though it is not an encumbrance: the shares belong to several people at once. In Sttok each one is recorded against the specific shares it affects, with its dates and its status, on the shareholder's profile.
On this page
The essentials. With an encumbrance, the shares still belong to their holder, but the holder is not alone: someone else has a right over them. The practical question is always the same: who votes those shares and who receives their dividends?
The types, and who votes and receives dividends in each#
The table shows the general rule. The articles of association, or the deed that creates the encumbrance, may say otherwise, and then what they say prevails.
| Type | What it is | Votes | Receives the dividend |
|---|---|---|---|
| Co-ownership | Several people own the same shares, each with their own share. | A single person they appoint among themselves | The co-owners, in proportion to their share |
| Usufruct | One person enjoys shares that belong to another, the bare owner. | The bare owner | The usufructuary |
| Pledge or security | The shares secure a debt. If it is not paid, the creditor can enforce against them. | The holder | The holder, unless otherwise agreed |
| Attachment | A court or a public authority seizes the shares for a debt of the holder. | The holder | Depends on what the attachment says |
| Call or put options | Someone has the right to buy those shares at a set price, or their holder has the right to sell them. | The holder | The holder |
Besides these, Sttok records other types: "Transfer restrictions", "Shareholders' agreements", "Tax liens", "Registry entries", "Trusts" and "Other".
A call option does not affect voting or dividends until it is exercised. But it does matter to anyone about to buy those shares: if someone holds an option over them, they are not free.
Co-ownership is not an encumbrance#
In an encumbrance, a third party has a right over what is yours. In co-ownership the shares belong to several people at once: nobody is "on top". That is why it does not count towards the encumbered shares on the profile. It is recorded in the same place because it has a similar consequence: those shares cannot be transferred without the others.
How it looks in Sttok#
- On the shareholder's profile, "Summary" tab, the "Encumbrances and co-ownership on these shares" block shows each one in a row: "Encumbrance type", "In favor of", "Class", "No. of shares", its numbering ("From no.", "To no."), "Start date", "End date" and "Status".
- In the profile header, how many encumbered shares they hold, so you can see it without scrolling.
- In the system categories: anyone holding shares in co-ownership, in usufruct or with another encumbrance appears in Co-owner, Usufruct or Other encumbrances. We explain this in Group shareholders with categories.
The status of an encumbrance#
An encumbrance in force shows as "Active". Once it has an end date, it is no longer active.
Watch out for encumbrances whose term has already passed: as long as they are still recorded, they count. A third party can rely on what appears in the register of registered shares.
Frequently asked questions#
If I sell encumbered shares, does the encumbrance disappear?
No. The encumbrance goes with the shares: whoever buys them receives them with it. That is why you should know which share numbers are encumbered before selling.
I am a shareholder and I hold shares in usufruct. Can I vote?
As a general rule the bare owner votes, although the articles of association may give the vote to the usufructuary. If in doubt, ask the company what its articles say.
Where can I see the encumbrances on my shares?
On your profile, in the "Encumbrances and co-ownership on these shares" block of the Summary tab. We explain this in See your position in the company.
Related
- Record and cancel an encumbrance An encumbrance is recorded from the profile of the shareholder whose shares it affects, with "Add encumbrance", in two steps: the encumbrance details (type, dates, numbering and deed) and its participants. When it is lifted, its end date is recorded.
- Group shareholders with categories Categories are labels the company puts on its shareholders, such as "Founders", "Investors" or a family branch, to group them and find them together. There are also three categories that Sttok assigns on its own from encumbrances: Co-owner, Usufruct and Other encumbrances.
- See your position in the company Your shareholder profile in Sttok tells you how many shares you hold, what percentage of the company they represent, which class they are and what their numbering is. It also shows what you have invested and received, the operations you have taken part in, the dividends you have received and your documents, such as certificates.
- Share classes and numbering A class groups the shares that carry the same rights: how many votes they give, their nominal value and whether they have preferences or restrictions. Each share also carries a number, and knowing which numbers belong to whom is what makes it possible to transfer specific shares.