What is Bearer Share?
734 reads · Last updated: December 5, 2024
A bearer share is equity security wholly owned by the person or entity that 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.
Definition
Bearer shares are equity securities owned entirely by the individual or entity in possession of the physical stock certificate, hence the term 'bearer' shares. The issuing company neither registers the owner of the stock nor tracks the transfer of ownership; dividends are paid to the bearer upon presentation of the physical coupon to the company. Since the shares are not registered with any institution, the transfer of ownership involves only the delivery of the physical document.
Origin
The concept of bearer shares originated in the late 19th century when stock trading primarily relied on physical certificates. As financial markets evolved, many countries gradually shifted to registered shares to enhance transparency and security, but bearer shares still exist in certain regions and specific circumstances.
Categories and Features
Bearer shares are mainly divided into common bearer shares and preferred bearer shares. Common bearer shares typically grant the holder voting rights and dividend rights, while preferred bearer shares have priority over common shares in receiving dividends but usually do not carry voting rights. The main features of bearer shares are their anonymity and ease of transfer, but they also pose higher risks of loss and legal disputes.
Case Studies
In the early 20th century, many European companies issued bearer shares to attract international investors, as this form of stock allowed investors to remain anonymous. Another example is certain offshore financial centers, which still permit the issuance of bearer shares to attract specific types of investors. However, these forms of stock have also been used for tax evasion and money laundering activities, leading some countries to tighten regulations on bearer shares.
Common Issues
Common issues investors face with bearer shares include how to securely store physical stock certificates to prevent loss and how to legally transfer these shares within the legal framework. Additionally, many people mistakenly believe that bearer shares can completely avoid tax reporting, which is incorrect, as most countries require reporting of all capital gains.
