In this article, we’re going to explain bearer shares meaning, risks, and important issues you should consider before deciding whether bearer shares are right for you.
Feel free to use the table of contents to jump ahead to any sections that are immediately relevant to your search.
Table of Contents
- Meaning of a Bearer Share
- Risks of Bearer Shares
- When Bearer Shares Make Sense
- Frequently Asked Questions
- Ready to Explore Your Options?
Meaning of a Bearer Share
A bearer share is a physical share certificate that determines the ownership of an underlying entity. Bearer shares are unregistered, difficult to regulate, and can cause significant challenges when it comes to banking and accessing other financial activities.
How Do Bearer Shares Work?
When a company’s ownership is held via bearer shares, an individual in possession of those bearer shares is deemed to be the owner of the corresponding equity in the company.
In other words, if you hold the bearer shares that represent 100% interest in a particular company, you own 100% interest in that company. It does not matter if you were the person that originally incorporated the company or not.
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Risks of Bearer Shares
With the above in mind, it’s easy to see that there are several risks associated with bearer shares. Not the least of which include your bearer shares being stolen and losing ownership of the related company.
That said, the risks associated with bearer shares do not have to be entirely nefarious. Instead, there are practical risks that you should consider as well.
For example, bearer shares have become significantly less popular over the last decade. There are a number of reasons for this. But, ultimately, it’s because companies registered with bearer shares are incredibly difficult to operate for any practical purposes.
Not surprisingly, one of the main reasons for this is banking and financial services. Most banks around the world refuse to open bank accounts for companies incorporated with bearer shares. This is because banks are ultimately unable to track who owns the company.
When Bearer Shares Make Sense
Of course, there are instances where bearer shares could make sense. But, due to the practical considerations referenced above, these instances typically involve companies that do not require banking, payment processing, or other financial services.
Instead, bearer shares tend to be used when a company has been incorporated for holding purposes, such as holding collectibles, art, and even real estate. That said, in most cases, there are often better ways to structure such assets via trusts and LLCs, depending on the jurisdiction where the assets are held.
In all cases, if you are considering incorporating a company and issuing equity via bearer shares, you should first consult a professional advisor that will walk you through both the structuring and the practical considerations.
Frequently Asked Questions
Below are two of the most common questions that we receive from people looking to understand the meaning of bearer shares. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Why Is a Bearer Share Risky?
Bearer shares are risky because the individual who holds them retains legal ownership over the company that they are tied to. In other words, if you incorporate with bearer shares and someone takes your bearer shares, that person now technically owns your company.
That said, there are other reasons why bearer shares are risky as well. Not the least of which include the operational inefficiencies that they can cause. In most countries, bearer shares are not accepted. And, if your company has any desire to open bank accounts, bearer shares are going to limit your options significantly.
Are Bearer Shares Still Legal?
In certain countries, bearer shares are still legal. However, the only type of bearer share that is legal today is the immobilized bearer share. Mobile bearer shares are no longer legal. If you would like a complete list of the jurisdictions that offer bearer shares, please visit our free ultimate guide to bearer shares above.
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