Bearer Share
Candlefocus EditorIn the past, bearer shares were very popular and a common feature of company ownership in Europe, South America, and the Caribbean. These shares allowed shareholders to keep the certificates, anonymous and transferable just like a bank note, without the need of a deed, registration or notary.
However, nowadays, many large companies have made the transition from using bearer shares to using registered shares due to an increased cost associated with their management and the greater risk of misuse by criminals. Bearer shares allow transfer of ownership to be conducted with greater simplicity and can’t be checked through official records to detect if the shares were acquired through legitimate or illegal activity. As a result, fraudulent activities such as money laundering, tax evasion, and financing for terrorism has been made easier for criminals with the use of bearer shares.
So, companies tend to not use bearer shares to protect themselves from being linked with such illegal activities. Additionally, taxation authorities and financial authorities from different countries around the world may now limit the use of bearer shares so that their detection and deterrence of illegal activities may be made more feasible. Usually, publically listed companies do not issue bearer shares due to additional rules and regulations regarding publically traded securities.
In some countries, investors may issue convertible bonds, coupon bonds, or other instruments in lieu of bearer shares, which can be converted into bearer shares. They also may be offered unnamed or wholly unsecured shares in private transactions, so that only the company itself, who issued the security, knows the identity of the shareholder.
Bearer shares have their unique benefits and risks that potential investors need to weigh before deciding whether they should be a part of their portfolio. Although it is not very common to see companies offering shares in this format now, there are still some regions and companies around the world that continue to use bearer shares for equity capitalization.