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Introduction to Bearer Shares

10 Oct 2023

Introduction

For several decades, investors have been intrigued by bearer shares – a unique financial instrument. With these special securities, ownership, and control are given to whoever owns the share certificate. Bearer shares have been an essential instrument for managing financial transactions. Let’s understand the bearer shares and understand their functioning and position in the current financial system.

What are the bearer shares?

Bearer shares are distinguished by their anonymity and flexibility in contrast to registered shares, which are linked to a single owner whose information is listed in the company's records. Since the share is not registered to any authority, the transfer of the ownership of the stock involves only delivering the physical document. 

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History of bearer shares

The origins of bearer share can be traced to the early years of modern capitalism. These shares were called bearer shares because whoever had the share certificate was deemed the owner. It provided privacy to the businessmen because there were no detailed ownership records that were required. 

What makes bearer shares different?

Bearer shares differ from their registered counterparts in the following ways:

  • Anonymity

Bearer shares provide anonymity because ownership is determined by having the actual share certificate in hand rather than being linked to particular people or organizations. 

  • Transferability

Bearer shares have a high degree of transferability. Ownership transfer is completed by giving the physical certificate to the new owner, allowing for quick and easy financial transactions.

  • Lack of Record-Keeping

Businesses that issue bearer shares do not keep track of who owns which shares. Authorities may find it difficult to track ownership changes and verify compliance with tax and regulatory laws because of this lack of record-keeping.

What are the disadvantages of bearer shares?

Bearer shares are easy to handle, but they also come with significant disadvantages:

  • Risk of theft

Bearer shares run the risk of being stolen or being lost. The owner may lose their investment if the actual share certificate is lost or stolen.

  • Illicit use

Due to their anonymity, bearer shares have been linked to money laundering, tax evasion, and other illegal acts. In some jurisdictions, this has resulted in tighter regulatory oversight and efforts to limit their use. 

  • Reduced Transparency

The absence of ownership records for bearer shares may compromise corporate governance and transparency, making it more challenging for shareholders to exercise their rights and for authorities to ensure that laws and regulations are being followed.

Final Words

Bearer shares have a rich history and unique characteristics that set them apart. Over the years, there has been a significant decline in the number of nations and financial institutions ready to deal with bearer shares because of its notorious nature. The ownership of these kinds of shares is also prohibited by Indian law. 

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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