Is a Pledge Agreement a document option?
A pledge and assignment agreement is a legal document that outlines the terms and conditions of a pledge of collateral to secure a debt or other financial obligation (e.g. equity interest in the borrower). It outlines the specific property or assets that are being pledged as collateral and specifies the terms of the agreement between the borrower and the lender or creditor.
The GoDocs Pledge and Assignment Agreement secures the pledged equity interest in the borrower itself as additional collateral to the loan.
Template Sample: Pledge Agreement
Why a UCC-1 May Be Generated for a Pledge of Equity InterestsWhen a loan includes a Pledge Agreement—for example, a pledge of a borrower’s membership interests, partnership interests, or stock—the GoDocs system automatically generates a UCC-1 financing statement.This filing is required to perfect the lender’s security interest in those pledged equity interests under Article 9 of the Uniform Commercial Code.Although the borrower’s ownership interests are not real property, they are considered personal property (general intangibles or investment property) under the UCC. Filing a UCC-1 protects the lender’s right to those interests if the borrower defaults.
Filing LocationThe location of the filing depends on the pledgor/debtor’s jurisdiction of residence or organization, not on where the entity being pledged is formed.
- If the pledgor is an individual, the UCC-1 is filed in the state of the individual’s principal residence.
- If the pledgor is an entity (e.g., LLC, corporation), the UCC-1 is filed in the state where the entity is organized or incorporated.
- If multiple pledgors exist (e.g., one in NY and one in CA), UCC-1s will be filed in each applicable jurisdiction.
Unlike fixture filings for real estate collateral—which are filed at the county level—a UCC-1 for a pledge of equity interests is filed at the state level with the Secretary of State.
Practical ExampleIf a New York LLC borrower’s equity interests are pledged by two signers—one a New York resident and one a California resident—GoDocs will generate UCC-1 filings in both New York and California, because those are the states of residence of the pledgors.
Why This MattersWithout a properly filed UCC-1, the lender’s interest in the pledged equity could be subordinated or lost entirely if another creditor perfects first or if the borrower declares bankruptcy. The UCC-1 provides public notice of the lender’s lien, ensuring priority of the lender’s claim in the pledged ownership interests.