What is the difference between perfection by registration and perfection by possession under the PPSA?

Perfection by registration is the standard method under Ontario's Personal Property Security Act, where a secured party files a financing statement in the public registry describing the debtor and the collateral. It works for essentially any type of personal property and is the default approach most general security agreements rely on, including for collateral the lender never physically holds, like receivables or inventory the corporation continues to use.

Perfection by possession is an alternative available for certain collateral types, where the secured party perfects its interest by physically holding the collateral itself, rather than by filing anything in the registry — this is more relevant for tangible items like certain instruments, chattel paper, or money, and for some investment property through actual possession of certificates. For a limited set of collateral, a secured party can even perfect by both, or choose whichever method fits the transaction. The main practical difference is that registration keeps the debtor in possession and using the collateral in its business, which is essential for financing based on a fluctuating asset like inventory, while possession-based perfection actually takes the asset out of the debtor's hands, which only makes sense for specific, discrete items.