What is a 'Bearer Share'
A bearer share is an equity security wholly owned by whoever holds the physical stock certificate. The issuing firm neither registers the owner of the stock nor tracks transfers of ownership; the company disperses dividends to bearer shares when a physical coupon is presented to the firm. Because the share is not registered to any authority, transferring the ownership of the stock involves only delivering the physical document.
BREAKING DOWN 'Bearer Share'Bearer shares lack the regulation and control of common shares because ownership is never recorded. Similar to bearer bonds, these shares are often international securities.
Benefits of Using Bearer Shares
The only tangible benefit to be gained from using bearer shares is privacy. The highest degree of anonymity possible is maintained with respect to ownership in a corporation by a holder of bearer shares. Although the banks that handle the purchases know the contact information of the people purchasing the shares, in some jurisdictions, banks are under no legal obligation to comprise the identity of the purchaser. Banks may also receive dividend payments on behalf of the shareholder and provide ownership confirmation at shareholders' general meetings. Moreover, purchases can be made by a representative, such as a law firm, of the actual owner.
Disadvantages and Risks of Bearer Shares
In a post-911 world in which the threat of terrorism looms heavily throughout the world, part of the strategy to counter the threat is to cut off the sources of terrorist funding. Consequently, in a worldwide effort to deter terrorism funding, money laundering and other illicit nefarious corporate activity, many jurisdictions have enacted new legislation that places very tight restrictions on the use of bearer shares or have altogether abolished their use. This has resulted in the reluctance of many banks and financial institutions to open accounts or have any associations with corporations or shareholders that deal in bearer shares. The choice of jurisdictions and financial institutions willing to deal in bearer shares has narrowed significantly.
Another disadvantage related to bearer shares is the increased cost incurred from hiring professional representation and advisors to maintain the anonymity that bearer shares provide. Unless the bearer shareholder is a financial and/or legal expert in these matters, avoiding the many legal and tax traps associated with bearer shares can be a difficult challenge.
Uses of Bearer Shares
Bearer shares have some valid uses, albeit their inherent detriments. Asset protection is the most common reason to use bearer shares because of the privacy they provide. For example, individuals who do not want to risk their assets being seized as part of a legal proceeding such as a divorce or a liability suit may resort to the use of bearer shares.