Meaning of Bearer shares

Bearer shares are shares issued under the names of unnamed bearers. The owner's identity is not known by the issuing company. Let's learn more about these shares.

The company will provide proof of purchase in the form a receipt. This receipt can be used to prove that you have purchased shares. The SEBI has made it mandatory that investors open DEMAT accounts in order to keep their market instruments and to abolish physical share certificates. Some people have these certificates from investments made before the SEBI mandate, while others don't have their names on the certificates. Bearer shares are those whose names are not on the share certificates.

What is bearer share?

These equity security are 100% owned by individuals and entities that have physical share certificates. These shares are usually issued to an "unnamed borer". A company does not keep track of who the shareowner is, nor is the owner registered. These shares can be transferred on exchanges and over-the-counter. They can also acquire membership and proprietary rights upon purchasing them.

Proof of ownership Bearer shares and proof

Bearer shares can be purchased through brokerage houses or banks. Owners will not need to name the buyer. Brokers and banks play an important role in the payment of dividends to bearer shareholders. They have the buyer's details, but not the issuer. Custodian banks not only confirm share ownership but also provide information about annual meetings, dividend payouts, and other details on behalf of the company issuing shares. It is nearly impossible to restrict the transferability of these shares, as the shareholders are by definition unknown or anonymous.

Benefits of bearer stocks

1. These shares are completely private for the owners

Owners can enjoy complete privacy, which is the most important benefit. Bearer shareholders have the best chance to enjoy the greatest level of anonymity regarding ownership of shares in a company. Although banks that handle the purchase are aware of the contact information of owners, most jurisdictions do not require them to reveal the identities. Investors can also make purchases through other representatives such as the law firm representing the owner.

2. These are very easy to transfer

These shares also have the added benefit of being transferable easily. They can be handed over to anyone interested in purchasing the shares. These shares can be sold without transferring any inscriptions to the certificate. All rights can be easily transferred by physically transferring the certificate of shares to the buyer, or an heir. This allows stock-providing companies to reduce administrative burdens and increases liquidity on the capital markets.

Bearer shares: Legal ramifications in India as well as across the globe

Bearer shares are private and easy to transfer. However, bearer shares are notoriously dangerous, especially if they are misused. Many countries around the globe have placed restrictions or bans on these shares. These types of shares are not allowed under Indian law. You can still invest in stocks around the world and you can purchase these shares in many European and South American countries. However, there may be additional costs.

Bearer shares, like all investments, have both merits and detriments.