A share charge is a form of security used in lending where the borrower pledges their shares in a company as collateral for a loan. While less commonly discussed than property charges, share charges play an important role in structured finance, corporate lending, and certain types of asset-based lending.
How a Share Charge Works
When a lender takes a share charge, the borrower transfers legal or equitable control of their shares to the lender as security for the loan. The borrower typically retains the economic benefits of the shares (such as dividends and voting rights) during the term of the loan, but the lender has the right to take full ownership if the borrower defaults.
Fixed vs Floating Share Charges
- Fixed charge: The lender has a specific claim over identified shares. The borrower cannot dispose of or further charge these shares without the lender’s consent.
- Floating charge: The charge covers a changing pool of shares. The borrower can deal with the shares in the ordinary course of business until the charge crystallises (usually upon default).
Fixed charges provide stronger security for the lender and are more common for share charges.
When Share Charges Are Used
Corporate Lending
When a company borrows money, the lender may take a share charge over the borrower company’s shares (held by the shareholders) in addition to charges over the company’s assets. This gives the lender the ability to take control of the company if the loan defaults.
Property SPV Lending
In property finance, it is common for investors to hold properties through Special Purpose Vehicles (SPVs) — limited companies set up specifically to own one or more properties. When lending against these properties, lenders often take:
- A first charge over the property itself
- A share charge over the SPV shares
The share charge provides an additional layer of security. If the borrower defaults, the lender can take control of the SPV (and therefore the property) through the share charge, which can be faster and less costly than enforcing the property charge through court proceedings.
Mezzanine Finance
In development finance and structured lending, mezzanine lenders (who sit behind the senior lender) may use share charges as their primary form of security, since the senior lender typically holds the first charge over the property.
Management Buy-Outs
Share charges are commonly used in management buy-out transactions, where the acquiring team pledges the shares of the target company as security for the acquisition finance.
Share Charges vs Property Charges
| Feature | Share Charge | Property Charge |
|---|---|---|
| Security type | Shares in a company | Real property (land/buildings) |
| Registration | Companies House | Land Registry |
| Enforcement speed | Generally faster | Can be slower (court process) |
| Valuation | Based on company/asset value | Based on property market value |
| Borrower impact | May lose control of company | May lose the property |
| Common use | Corporate/SPV lending | All property lending |
Enforcement of a Share Charge
If the borrower defaults on the loan, the lender can enforce the share charge. This typically involves:
- Serving a default notice on the borrower
- Appointing a receiver or taking direct action under the charge
- Transferring the shares into the lender’s name or a nominee
- Taking control of the company and its assets
The speed of enforcement is one of the key advantages of share charges for lenders. While enforcing a property charge can take months through the court system, enforcing a share charge can be accomplished in days or weeks.
Implications for Borrowers
Before Granting a Share Charge
- Understand the terms — know exactly what you are pledging and under what circumstances the lender can enforce
- Check existing restrictions — shareholder agreements, articles of association, or other agreements may restrict your ability to charge shares
- Consider the consequences — if the lender enforces, you lose control of the company and all its assets
- Take legal advice — share charges are complex legal documents that should be reviewed by a solicitor
During the Loan
- Comply with the loan terms — breaching covenants can trigger enforcement
- Maintain the company — keep the company in good standing, file accounts and returns on time
- Communicate with the lender — if you are having difficulties, early communication is always better than silence
At Loan Repayment
Once the loan is repaid, the lender should release the share charge. Ensure this is done promptly and that the release is registered at Companies House.
Share Charges in Property Finance
In the context of StatusKWO’s business, share charges are most commonly encountered in:
- SPV bridging loans — where the property is held in a limited company
- Development finance — where the development company’s shares are charged
- Portfolio lending — where multiple properties are held in a corporate structure
When we take a share charge, it is always alongside a property charge and serves as additional security rather than the primary collateral. Our team explains all security requirements clearly before you commit to any facility.
The StatusKWO Approach
At StatusKWO, we believe in transparent lending. If a share charge is required as part of your facility, we explain exactly what it means, why we need it, and what your obligations are. Our legal team works with your solicitors to ensure the documentation is fair and clearly understood by all parties.
Contact us to discuss your lending requirements and learn more about how we structure our facilities.