Stock power is a legal power of attorney form that transfers the ownership of certain shares of a stock to a new owner. A stock power transfer form usually is only required when an owner opts to take physical possession of securities certificates, rather than holding securities with a broker. A stock power form includes the previous owner's name, a description of the shares to be transferred, the stock certificates, and the cost basis of the shares. A stock power usually requires a signature guarantee to protect against fraudulent transfers.
A stock power form is sometimes referred to as a security power form.
Breaking Down Stock Power
Most often, when buying or selling shares of stock, a retail investor uses a brokerage firm that will take care of any legal documentation required for the transfer of shares to the new owner. Thus, in the vast majority of cases, the owner of the shares of a stock does not take possession of the share certificates and does not have to complete legal paperwork to buy and sell shares. The shares are held in an electronic record with the broker's custodian eliminating the need for physical possession of the shares. However, before technology allowed records to be kept entirely electronically, physical stock certificates were the norm, and it was ubiquitous to use stock powers when transferring ownership of shares from one party to another.