Name your reasons for having bearer shares in your offshore corporation. Anonymity of owners, freedom of share transfer with no reporting or taxes, maybe something else. While this instrument can play its role in certain circumstances, it can hardly bring you the expected benefits nowadays. There are a lot of downsides, which you probably have never heard or thought about.
Availability of Bearer Shares
First of all, today bearer shares are hardly available in tax haven jurisdictions. Mere five to ten years ago legislation of practically each tax haven allowed for issue of bearer shares. Today most of them backwatered and substantially improved the related laws to comply with the OECD principles of transparency.
Many, like Bahamas, simply eliminated bearer shares as institute and prescribed the existing companies to exchange their bearer shares to the registered ones. Others, like Belize, British Virgin Islands or Dominica, still let you have bearer shares but require to immobilize them.
The latter generally means that the share is to be deposited with an authorized custodian, to never leave the country, and that you get only a notarized copy of it in hands. The purpose of immobilization is exactly to restrict the bearer share from free circulation. It’s still safe to hold it, but it does not play its free transfer function any longer. Herewith, it can be more a problem to you than a benefit.
Bearer Shares and Anonymity of Holder
This is true that your name does not appear on the share certificate or in the register of shares. However, the law of each and every tax haven jurisdiction obliges the registered agent to fully identify the beneficial owner of the company. You do not appear on paper, but you are fully known to the provider. That means that if you intend or happened to break the law, whether in your home country or elsewhere, you may not feel safe by screening yourself behind an “anonymous corporation with bearer shares”.
Attitude of Banks to Bearer Shares
Here the situation is quite predictable. Banks do not like bearer shares at all. They are obliged by the law to always know the ultimate owner of the funds on the company’s bank account. With bearer shares it’s difficult to track the change of the owner, no matter how many promising declarations have been signed by the clients in this regard. The result is that many well-established banks simply refuse to open an account to a corporation with bearer shares. Others open accounts but under condition that you place your share certificate in custody with the bank.
“Presumption of Owner”
Even when available, too much anonymity is not that good.
There are still places promoting secrecy and the use of bearer shares. Panama would be a good example here. As of the moment, you can use bearer shares with no restrictions. Plus, what’s important, Panama do not share tax information with any other countries, at least for the moment. Nice and safe. But danger comes from the other side.
Consider legislation of your home country, or where you conduct business. Common law countries, with their judicial precedents system, are especially “not nice” in this regard. High secrecy tricks are not working here. If it is not possible to determine, who is the owner of an offshore corporation being a party to legal proceedings, the judge tends to presume that the defendant is the owner. Now, you are to find the owner or prove that you are not the one.
Property in Abeyance
Authorities of countries less particular about their international reputation may simply take advantage of mistiness around identification of the real owner and forfeit your property as the ownerless one. Property seized by the government with such formulation is very hard to get back. Well, of course, in certain countries this can happen with any company, in particular of offshore origin, but bearer shares are of real help.
Bearer Shares and Taxation
Tax law of developed countries is never simple. Non-presence of your name on the share certificate does not release you from obligations to report your offshore activities and incomes, and paying the according taxes, if any. Even if the reporting requirements are not that wide-reaching and you can avoid them, you may get caught by a commonplace stock transfer tax or gift tax. Some countries treat transfer of bearer shares as a gift. You may not know it, but you are supposed to report it and pay the according tax, as well as the whole chain of previous owners. If you didn’t do it, you are all in trouble, if one day it is discovered.
Many providers strive to discourage their clients from involving difficulties related to bearer shares. They impose extra fees for setting up corporations with bearer shares, while offering free nominee shareholder service instead.
We do not oppose using anonymous structures, not at all, but it is important to analyze every aspect of it. The above are only few from so many factors to consider.