In consultations we’re sometimes asked about bearer shares. This type of share has a long history in the offshore world, but nowadays is virtually unheard of.
This isn’t surprising, as bearer shares have always been a major problem for tax authorities.
Nowadays, using bearer shares automatically makes you a suspect of tax crimes (something similar to what happens if you invest in cryptocurrency). In other words, if the tax authorities find out you own these they’ll immediately put you under suspicion for being a tax evader, and will start investigating you.
As always, the reality is very different. There can be very good reasons for wanting to anonymise your status as a partner in companies through bearer shares, reasons which are not illegal in the slightest.
Think, for example, of a company’s entry into the market or the acquisition of real estate by a celebrity, or in cases where, for strategic reasons, it is preferable to keep the identity of whoever is behind the company a secret, or where someone does not want the people around them (family, partner, competition, enemies, or whoever) to know about their assets.
Understanding bearer shares?
But now you’ll be wondering, what actually are bearer shares?
Bearer shares are totally normal shares in a company which, however, are not registered, i.e., their owners do not appear on any public register.
As the partners aren’t on any register, the only way of knowing who the owner is is through ownership certificates, i.e., by the physical possession of the bearer shares, shares which are no more than a piece of paper.
As soon the share certificate is given to someone else, the company changes ownership. In other word, the company belongs to whoever physically possesses the corresponding shares.
Of course, this makes robbery the biggest risk of this type of company ownership. It is thus of the utmost importance to keep bearer shares safe and out of reach, as losing the share is practically equivalent to losing the company. It was rarely possible to reproduce shares.
Despite this, it isn’t surprising that bearer shares used to be so popular:
There was simply no indication of who the company really belonged to, as there was no public register in which the company was listed. The information was not in any public or private data banks.
Nor could you go to any law firm or company registration agency to find information on the company’s owners, as these shares could’ve changed hands since its creation.
Problems with bearer shares
In this way, bearer shares became the preferred vehicle for hiding anywhere in the world. That’s as long as the banks were involved. Even then, many banks were opposed to granting accounts to companies with mobile bearer shares which would be freely transferred at any given time.
It was very easy to cover up money laundering and terrorism financing with these structures. Nowadays, it has become virtually impossible (I’d go so far as to say even totally impossible) to get a bank account for a company with mobile bearer shares, i.e., with shares that can freely change ownership.
However, today you can still get bank accounts for companies with immobile bearer shares.
In this case, the bank acts as a trustee and keeps the bearer shares in its safes.
In this way, there is an entity that knows the financial beneficiary at all times, and in case of pressure from the authorities, or if one of the automatic exchange of information agreements requires it, it must provide information to the relevant tax authorities.
This is what today makes bearer shares only interesting in a few special cases.
Where do bearer share companies still exist?
In any event, the range of jurisdictions offering bearer shares has been steadily declining in recent years.
The OECD and high-tax countries have taken steps to prevent these anonymisation structures around the world that annoy them so much, or at least to regulate them such that if there is any doubt the actual owner of the company can be located.
This has led to the immobilisation of bearer shares, to the extent that the bank that opens the company accounts also manages them.
Once upon a time these sorts of shares were widespread in Europe and very popular.
If you’ve been following the offshore world for a long time, surely you remember the Czech SROs with bearer shares, a structure they suspended in 2013?
In the meantime, there is hardly any country in the world where these shares are issued. Under certain conditions some companies may still be operating with bearer shares. However, in many cases partners felt forced to change to registered shares, such as in Great Britain, where bearer shares have been prohibited since mid-2015.
Luxembourg and Switzerland also abolished bearer shares, which have meanwhile been scorned throughout the EU. You can still use them in Bulgaria, although only if they are immobile.
There aren’t many countries left which allow bearer shares. An example of this is Saint Vincent and the Grenadines, where the shares must be deposited in a local bank.
Panama also still allows immobile bearer shares, but imposes a punitive withholding tax of 20% on the distribution of dividends.
Why bearer shares are still attractive in the Marshall Islands
For truly anonymous and mobile bearer shares there is only one jurisdiction left in the world. This is the increasingly popular Marshall Islands in the Pacific.
Companies can be set up with bearer shares there not only relatively cheaply, but the incorporation is done fairly quickly and the administration is simple.
Once set up, IBCs in the Marshall Islands, which are by nature tax-free, do not require annual reporting or accounting of any kind. Bearer shares are mobile and unencumbered and can thus change ownership at any time.
You can get them for about $2,500, including bearer shares, so they are rightly one of the most popular classic offshore companies. This is also because the archipelago does not let itself be bossed about by the global mafia of high-tax countries.
Being a small, but relatively wealthy, island, it is not easily blackmailed. This is also due to the US protectorate which, as an associated state, greatly influences this island state’s foreign and defense policy, and grants enormous development aid.
Even without mobile bearer shares (remember you can’t open bank accounts with a company in the Marshall Islands, either), the Marshall Islands can undoubtedly be an attractive choice, as it is possible to open company bank accounts there while maintaining anonymity, as the register isn’t public either in the case of registered shares.
However, it is still an offshore jurisdiction and, therefore, the reputation of companies there isn’t particularly good.
So, is it still wise to use bearer shares?
As we’ve already said, it is no longer possible in most countries to set up a company with mobile bearer shares, and it is virtually impossible to open a bank account for an IBC in the Marshall Islands with mobile bearer shares.
This could become possible after years of private commercial relations with certain banks, or rather in countries with a very dubious reputation, but in any case you shouldn’t count on it.
As we said, you’re more likely to be able to open a bank account by immobilising bearer shares, where the banks act as trustees.
IBCs in the Marshall Islands with bearer shares make much more sense if banks aren’t needed. If it is only a question of lawsuit protection in the form of a bulletproof company, or if there are transactions with cryptocurrency (in this case identification in exchanges obviously presents a problem), or if it is simply a question of holding assets (for those who do not need banks, in the case of real estate, perhaps).
As you can see, bearer shares are no longer as attractive as they used to be, and have lost a great deal of the advantages they once entailed, but they can in some cases still be useful.
Unlike structures that seek anonymity by relying on straw men, you still have all the power in these structures and there is much less red tape or costs.
In the worst case, bearer shares can simply be broken or burned when you no longer wish to own a company. Or you can give them to someone you trust.
It’s virtually impossible to identify the owners of mobile bearer shares.
While the possibilities for using this type of share are very limited, it can make sense in individual cases. If necessary, Tax Free Today can naturally put you in contact with associate agencies for registration, or study in a consultation if it makes sense in your case.