A bearer share is an equity safety wholly owned by an individual who holds the physical stock certificate, therefore the name "bearer" share. The issuing firm neither registers the owner of the stock nor tracks transfers of ownership; the corporate disperse dividends to bearer shares when a physical coupon is presented to the firm.
The Dwindling Issuance of Bearer Bonds
Bearer shares are often international securities, common in Europe and South America. While some jurisdictions, such as Panama, allow the use of bearer shares, they impose punitive tax withholdings on dividends issued to owners to discourage their use. The Marshall Islands is the only country where the shares can be used without problems or extra costs.
Switzerland, a jurisdiction known for its emphasis on secrecy in banking transactions, has also begun the process of converting bearer shares into registered shareholdings. As of March 2019, the Swiss Federal Council has begun a consultation to abolish bearer shares.
In the U.S, bearer shares are mostly a problem of state governance, and that they are not traditionally endorsed in many jurisdictions' corporate laws. Delaware became the first state in the U.S. to restrict by statute a lot 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 concerning 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 disclose the purchaser’s identity. Banks may also receive dividend payments on behalf of the shareholder and provide ownership confirmation at shareholders' general meetings. Moreover, a representative, such as a law firm, of the actual owner can make purchases.
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 difficult.
For example, the Panama papers scandal extensively used bearer shares to conceal actual ownership of shares.
Uses of Bearer Shares
Bearer shares have some authentic 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 use bearer shares.
The best asset protection structure is the Panama Foundation, and the best jurisdiction to incorporate an active business is Panama. There are exceptions such as an offshore IRA LLC is best formed in Nevis. For more information, contact us.