What is a Bearer Share?
A bearer share is a term used to refer to an equity share that is fully owned by the person in possession of the physical stock certificate.
Understanding Bearer Share
When a business decides on for equity financing, it issues a number of shares stock to interested investors allowing them to invest their money into the business and in return receive proportionate ownership. A bearer share can be regarded as a regular share that is signed by the board of directors of the holding company and has equal benefits as regular shares. However, what differentiates them is that the owner’s name is not recorded on the physical stock certificate or public register, rather, the physical stock certificate carries the name “The Bearer” on it. Thereby, making it a bearer share.
In essence, the ownership of the share is only determined by the physical stock certificate. The bearer can only prove ownership of a stock when they have the physical stock certificate in their hand. A transfer of ownership is done the moment the physical stock certificate is out of the bearer’s possession to another person. In such a case, the new owner of the certificate will immediately assume all the rights associated with that certificate without involving any law firm, bank, company registration agency, or any databank agency to transfer ownership.
Advantages of Bearer Share
Privacy; many investors who opt for this option do it for its strong identity protection. Since it doesn’t get registered on a public register, it cannot be traced to any particular individual. In the event of registering a name at the onset of the certification, the transferrable nature of the bearer share would still make it quite impossible to trace the share to anyone in particular.
Transfer; the bearer share offers investors one of the easiest and hitch-free share transfer as no formalities are required. Once the physical stock certificate leaves the current owner to a new owner there is an immediate change in ownership.
Disadvantages of Bearer Share
Certificate Loss or Theft: Since stock ownership is limited to a physical certificate, the bearer must be extremely careful to protect the certificate. In the case of loss through a fire outbreak or theft, the bearer is bound to lose all their rights to the shares.
Poor Communication: A few communication issues such as performance reports or shareholders’ annual meetings may surface between the company and anonymous shareholders. Since the bearer is not known, it would be difficult to send company notifications to them.
Regulation ad Control Issues: Since the ownership is not publicly recorded it is quite impossible to regulate or control common shares or their activities as they tend to incur cost increase and can be used as instruments to conveniently anonymously fund criminal activities.