May hold securities: Overview, definition, and example
What does "may hold securities" mean?
"May hold securities" refers to a clause in a contract or agreement that permits certain individuals or entities, such as trustees, agents, or other third parties, to own or possess securities (e.g., stocks, bonds, or other financial instruments) on behalf of others or for their purposes. This clause typically clarifies the rights of such parties to hold, manage, or transact securities within the scope of their duties.
For example, a trustee under a bond indenture agreement might be allowed to hold securities on behalf of bondholders to fulfill fiduciary obligations.
Why is "may hold securities" important?
The "may hold securities" clause is important because it provides transparency and legal authority for specific parties to possess or manage securities. For SMBs, this clause ensures clarity in roles and responsibilities, particularly in agreements involving fiduciary duties, financial transactions, or governance.
Including this provision minimizes disputes by explicitly granting permission to hold securities, aligning all parties on the scope of authority and responsibility for managing or safeguarding financial instruments.
Understanding "may hold securities" through an example
Imagine an SMB enters into a bond issuance agreement, and the indenture trustee is responsible for holding and managing the securities issued to bondholders. The agreement includes a "may hold securities" clause, granting the trustee the authority to retain and safeguard the securities until maturity or redemption.
In another scenario, a company’s shareholders’ agreement allows a designated agent to hold stock certificates in escrow during a transfer process. The "may hold securities" clause in the agreement ensures the agent has legal authority to temporarily possess the certificates until the transfer conditions are met.
An example of a "may hold securities" clause
Here’s how a "may hold securities" clause might appear in a contract:
“The Trustee, in its individual or fiduciary capacity, may hold securities issued under this Agreement or other financial instruments related to the transactions contemplated herein. Such holdings shall not disqualify the Trustee from performing its duties under this Agreement, nor shall they create any conflict of interest.”
Conclusion
The "may hold securities" clause clarifies the authority of specific parties, such as trustees or agents, to possess or manage securities in accordance with their roles. For SMBs, this provision ensures transparency and trust in financial transactions or fiduciary relationships. A well-drafted "may hold securities" clause protects all parties’ interests, reduces the risk of disputes, and ensures compliance with contractual and regulatory obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.