Secured transaction

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A secured transaction is one in which an obligation, taken on by contract, is guaranteed as payable by collateral. Most commonly, a secured transaction (abbreviated, security) refers to stock in a corporation.


A security in the form of stock is "secured" by the fact that the obligation is guaranteed by the capital of the corporation: the person who owns the security actually owns a right to part of the assets of the corporation, should the stock become payable as such through bankruptcy or a merger.