Global Corporate Registries Ban Bearer Shares And Set Them On The Road To Disappearance

24 October 2021

Bearer Shares

As a form of company shareholding, a bearer share, to put it in basic terms, is equity security which is owned by the holder of the physical stock certificate. Important to note here, the holder, while owning this share, does not have his or her name on the share certificate. To elaborate further, the shareholder physically holds the share certificate and is considered to be an official shareholder of a given company, but the share certificate reads "The Bearer hereof".

OCDE stepping in

Now, with the 21st century bringing with it a high risk of fraud, theft, and lack of security, not having the printed name of the holder renders high risk in today’s financial management world. Imagine if the bearer shareholder owns 100% shares of the company - meaning he or she owns the entire company - and the certificate lands in the wrong hands or becomes lost or stolen. The ramifications of this would be catastrophic. It is clear then that bearer shares are highly vulnerable to loss and theft, with the ownership determined by physical possession of the share certificate only.

And until bearer shares and associated company formation are completely eradicated, there are imposed punitive tax withholdings on dividends issued to owners to discourage the use of such shares. As an equity security, bearer shares were a popular vehicle for tax evasion and their existence was a longstanding impediment to tax compliance efforts across the world. Now, more than ever, a global focus is on the maintenance of public ownership registers of legal entities and measures have been put into place to promote global company transparency. Efforts continue to stop tax evasion, with international forums and large parties pushing down hard on bearer shares and bearer share companies. The Organisation for Economic Co-operation and Development (OECD) along with other formidable international registries and regulatory bodies have already banned 'bearer shares' and such efforts have already proved effective for tax transparency on a global scale.

A few jurisdictions resist

With such a red flags, it’s no wonder global company registries are banning bearer shares. Currently, as of 2021, it is still possible to setup an offshore company with bearer shares, however, jurisdiction options have greatly reduced. 95% of tax-advantaged jurisdictions have abolished the use of bearer shares with only three jurisdictions remaining which are Panama, Marshall Islands and Nevis.

Those looking into offshore company formation within these regions can enter into bearer share company formation. With some caveats to consider: a register of ultimate beneficial owner will still need to be maintained by the corporate service provider. However, it is harder to open bank accounts for a bearer share company, and those walking this path will face many risks. While the possibility remains, what may be possible may not be risk free and reward full. As mentioned previously, vulnerability to loss and theft is one risk, along with tax compliance issues, and possible non-transparency and subsequent negative outcomes.

Those looking not to have their names recorded anywhere as the beneficial owner of an offshore company will have will be disappointed to find out that such practice is no longer possible.

And, while Bearer shares hold a concrete place in the history of offshore finance, and while they do boast some benefits, it is clear that the path to their disappearance is clear with extinction almost certain.

However, those looking for assistance with offshore company formation or bearer shares within select jurisdictions can visit sfm.com for more information.

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