4.7 Mortgaging and charging of shares

Mortgage of shares
Shares can be used as security to secure loans. In this case a shareholder may allow his shares to be charged
or mortgaged for his loan. This may be arranged by.
i. Legal mortgage
ii. Equitable mortgage

Legal Mortgage
This is effected by a transfer of shares to the lender as security for repayment of a debt. The mortgage deed
sets out the terms of the loans and includes a clause that allows the mortgagor to have shares given back to
him after the loan obligation has been discharged.
As long as the mortgagee remains the registered shareholder he is entitled to all dividends and voting rights.
In case the mortgagee (lender) accepts partly paid shares as security, he renders himself personally liable
for calls on the shares.
A legal mortgagee is thus a member of the company.

Equitable mortgage
This is effected by the deposit of the share certificate by the borrower (mortgagor) with the mortgagee as
security for a loan with or without delivering a blank transfer, form to the mortgagee. Where the mortgagee
is in possession of a blank transfer form and the loan is not repaid as previously agreed he may fill in his
name as transferee and get his name as transferee and get his name registered on the register of members
or he may sell the shares after giving due notice.