What is a 'Bearer Share'

A bearer share is an equity security wholly owned by whoever holds the physical stock certificate, thus the name "bearer" share. 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. Bearer shares are similar to bearer bonds, which are fixed-income securities belonging to the holders of physical certificates rather than registered owners.

The Dwindling Issuance of Bearer Bonds

Bearer shares are often international securities, common in Europe and South America — although the use of bearer shares in these nations has dwindled as governments crack down on anonymity-related illegal activity. Many large foreign corporations over the past decade or so have also chosen to transition to full usage of registered shares. Germany-based pharmaceutical giant Bayer AG, for example, started to convert all its bearer shares to registered shares in 2009, and in 2015, the United Kingdom abolished the issuance of bearer shares under the provisions of the Small Business, Enterprise and Employment Act 2015. In the United States, bearer shares are mostly an issue of state governance, and they are not traditionally endorsed in many jurisdictions' corporate laws. In fact, Delaware became the first state in the U.S. to ban by statute the sale of bearer shares in 2002, per the state's site page on corporate law.

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

The ownership of bearer shares often coincides with an 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.

Also, in a post-911 world in which the threat of terrorism looms heavily, 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, as mentioned, 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.

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.

RELATED TERMS
  1. Pay To Bearer

    Pay to bearer means that any check or draft can be transferred ...
  2. Bearer Form

    A bearer form is a security not registered in the issuing corporation's ...
  3. Holder Of Record

    A holder of record is the name of the person who is the registered ...
  4. Registered Bond

    A registered bond is a bond which has its owner registered with ...
  5. Coupon

    A coupon is the annual interest rate paid on a bond, expressed ...
  6. Add-On Certificate of Deposit

    An add-on certificate of deposit allows the bearer to deposit ...
Related Articles
  1. Investing

    Bearer Bonds: From Popular to Prohibited

    Bearer Bonds are transferable, negotiable and anonymous. Learn why they're prohibited in the United States.
  2. Investing

    The 4 Ways To Buy And Sell Securities

    Know the four main avenues of buying and selling investment instruments.
  3. Investing

    Tech Plays for Dividend Seekers (XLK, VGT)

    A sector looked at by investors traditionally for high growth stock picks now boasts the largest annual dividend growth rate in the S&P 500.
  4. Investing

    iShares Silver Trust ETF: Who Is Invested? (SLV)

    Discover the top institutional owners of the iShares Silver Trust exchange-traded fund (ETF), their exact ownership and their recent position adjustments.
  5. Financial Advisor

    Finding Unclaimed Assets: Top Tips

    Locating unclaimed money or other property for clients can be a very useful additional service that can help you to add value and grow your business.
  6. Tech

    Crypto Hedge Fund Reports Lifetime Returns Of 10,136.15%

    Pantera Capital, among the pioneers in crypto-focused investing, has reported lifetime returns of over 10,000%.
  7. Investing

    CAPEX Spending In The Energy Sector Keeps On Growing

    As global energy demand continues to trend higher, more pressure is being placed on finding new sources of supply. That fact is driving energy firms to open up their wallets in a big way. Overall, ...
  8. Investing

    Know your shareholder rights

    Common-stock owners have numerous privileges and should be vigilant in monitoring a company. Read on to learn what rights you have as a shareholder.
  9. Financial Advisor

    Is it Too Easy to Become an RIA?

    If you want to become an RIA all you have to do is pay a $165 fee to the SEC and pass the Series 65 exam. Is the bar set too low?
RELATED FAQS
  1. What are the types of share capital?

    Companies obtain share capital by selling ownership shares to the public. The two types of share capital are common stock and preferred ... Read Answer >>
  2. After a Stock Split, What Happens to Certificates?

    Find out why a stock split will have little effect on the holders of stock certificates. Learn how shares are held in electronic ... Read Answer >>
Trading Center