Which of the following statements is/are correct with references to pledged shares?

1. It is one of the options that the promoters of the companies use to secure loans to meet the working capital requirement, personal needs and to fund other ventures or acquisitions.

2. It is a method by which the companies guarantee returns to the minority shareholders.

Select the correct answer using the code given below:

Pledging of shares is one of the options that the promoters of the companies use to secure loans to meet the working capital requirement, personal needs and to fund other ventures or acquisitions.

A promoter’s shareholding in the company is used as collateral to avail a loan. While pledging shares, the promoters retain their ownership. However, as the share price keeps fluctuating, the value of the collateral also changes. When the value of the shares pledged with a lender falls below a certain level, it triggers ‘margin call’, requiring the promoters to make up for the shortfall in the value of the collateral.