Bearer share - What is a bearer share?
A bearer share is a type of share that doesn’t need to be registered under a specific person or business. The share will not be registered on any share registry and whoever holds the share certificate has full ownership of the share.
Want to know more about shares? Check out our article explaining the different types of shares that exist.
The bearer share is no longer widely used due to its link to fraud. They also caused issues for tax authorities by making tax evasion simpler.
What is the difference between a bearer share and a registered share
Both registered shares and bearer shares are types of shares sold by a company. The only difference is that registered shares have the owner’s name and details on the share certificate and can be found on a share register.
Bearer shares cannot be traced back to the owner and aren’t registered anywhere. The person who holds the certificate is the owner and is able to receive dividends.
Registered shares are preferred for companies as the business will always be able to keep track of who owns stock, and can avoid a potential hostile takeover.
The legality of bearer shares
Bearer shares have become a huge issue for tax authorities, and because of this, are not commonly used compared to registered shares.
There’s no way of actually knowing who owns these assets other than showing the physical share certificate, which is only a piece of paper. Therefore, if the tax authorities realise that you own bearer shares, they may look into your situation for tax evasion.
There are many jurisdictions and countries that have banned the use of bearer shares, including many states in the US, and most countries in Europe.
They are still commonly used in places like Panama. However, this has placed Panama in a grey zone for many countries for money laundering, so they’ve recently introduced new rules for issuing bearer shares.
The benefits of bearer shares
We’ve already covered the risks and legality of bearer shares, but what are the advantages? Some people prefer using bearer shares over registered shares because of the privacy surrounding them.
Bearer shares are purchased anonymously so that the company will not know the details of the owner. The bank that handles the purchase of the share will have the contact information for that person, however, in most cases, have no legal obligation to disclose their identity.
For instance, individuals who are under legal proceedings such as a divorce or bankruptcy will not risk having their bearer share seized.