Definition
A bearer share is a type of equity security that is owned by whoever holds the physical stock certificate. The issuing firm neither records the owner’s name nor requires the owner to provide proof of identification in transactions. This allows for transfer of ownership simply by delivery of the physical document.
Phonetic
The phonetics of the keyword “Bearer Share” is /ˈberər ʃer/.
Key Takeaways
- Ownership Transfer: Bearer shares belong to whoever physically holds the share certificates. This allows for swift and easy transfer of ownership, as there’s no need to register the change.
- Confidentiality: Because bearer shares do not have the name of the owner on them, they provide a great deal of anonymity. This can be an attractive feature for those seeking privacy about their investments but it can also act as a channel for illegal activities like tax evasion.
- Discontinuation and Restrictions: Due to their potential misuse, many countries have discontinued the issuance of bearer shares and put significant restrictions on their transfer. For instance, a company in the United States is not legally allowed to issue bearer shares.
Importance
A Bearer Share is an important finance term because it is a type of equity security that is wholly owned by whoever holds the physical stock certificate, with no recorded owner on the books of the issuing firm. The bearer of the physical certificate is the actual owner of the security, which essentially makes the owner anonymous. This type of share contrasts with a registered share, where the owner’s details are written on company documents and the certificate itself. Bearer shares offer owners a high level of privacy, but their use has been widely criticized because they can facilitate money laundering, tax evasion, and illicit flows of capital, hence leading to bans in many jurisdictions.
Explanation
Bearer shares are an extraordinary type of equity security where ownership is based on physical possession of the certificate, rather than through a recorded owner’s name. In terms of their purpose, bearer shares exist to grant investors relative anonymity and flexibility. By design, these shares are unregistered and no record of ownership is maintained by the issuing entity or its agent, thus making the physical holder of the share certificate the presumed owner. This allows for discrete transactions since trades can be completed simply by delivering the physical document representing the shares. However, the anonymity provided by bearer shares also has a significant potential for misuse, which also defines their usage to a large extent. For instance, they can be used for illegal activities such as money laundering and tax evasion, since the identity of the owner can remain unknown. This has led many jurisdictions globally to either discourage their use or implement strict regulation around them. Hence, despite their flexibility for legal shareholders, the downside risks often outweigh the benefits, limiting their prevalence in most regulated markets today.
Examples
Bearer shares are a type of equity security that is wholly owned by whoever holds the physical stock certificate. This makes the recovery of lost or stolen shares almost impossible. The term “bearer” denotes that the certificate doesn’t have the name of the owner written on it and hence, ownership is transferred on delivery. This type of shares was more prevalent in the past; however, several countries have abolished it because it’s often exploited for illicit activities such as money laundering or tax evasion due to the ease of transfer and anonymity it provides.Example 1: Panama Papers Leak A big scandal known as the Panama Papers leak implicated numerous individuals and entities around the world who were using bearer shares, among other devices, to hide their wealth and evade taxes. Example 2: Switzerland’s Stance In Switzerland, up until 2015, people and corporations were allowed to issue bearer shares. However, the country abolished the issuance of bearer shares for non-publicly traded companies to improve transparency and combat illicit activities.Example 3: United States Corporations In the United States, some states like Delaware and Nevada used to allow companies to issue bearer shares. But due to increasing regulatory pressures and concerns about illicit activities, these states have since prohibited it. Notably, many US-based multinational companies that had issued bearer shares in the past have switched to registered shares, which require the owner’s name to be recorded in company books.
Frequently Asked Questions(FAQ)
What is a Bearer Share?
A bearer share is a type of equity security that is wholly owned by whoever holds the physical stock certificate. The issuing firm neither registers the owner of the stock, nor tracks transfers of ownership.
Are Bearer Shares legal?
While bearer shares are legal in certain jurisdictions, they are banned in many countries due to the risk of misuse for illegal activities such as tax evasion and money laundering.
How are Bearer Shares transferred?
Bearer shares are transferred simply by handing over the physical certificate from the seller to the buyer. Hence the term ‘bearer’ , the share belongs to whomever bears or holds the certificate.
Why are Bearer Shares considered high risk?
Bearer shares pose high risks as they may be used for illicit activities due to their untraceable nature. Companies and regulators have no way to know who owns the shares at any given time because ownership is not registered.
How do Bearer Shares differ from Registered Shares?
The key difference between bearer shares and registered shares lies in how ownership is recorded. For registered shares, ownership is logged in the company’s share registry, and transfers must also be recorded. For bearer shares, ownership is not recorded and transfers do not need to be logged.
What are some advantages of Bearer Shares?
Bearer shares have advantages including ease of transfer and confidentiality. Since no registration is required, the owner can remain anonymous. One can simply deliver the shares without any extensive paperwork.
What are some disadvantages of Bearer Shares?
The disadvantages of bearer shares include the risks of loss or theft as the ownership relies solely on the possession of the physical certificate. They can also be misused for tax evasion and money laundering due to lack of traceability.
Are dividends paid on Bearer Shares?
Yes, dividends can be collected on bearer shares. However, because the company doesn’t know who the owner is, it’s the holder’s responsibility to claim their dividends.
Related Finance Terms
- Anonymous Ownership
- Transferability
- Stock Certificate
- Corporate Governance
- Security Regulation
Sources for More Information
