What is Bearer shares?
Bearer shares are a type of share in a corporation that is owned by the person or entity in possession of the physical share certificate. Unlike registered shares, which are recorded in the company’s share registry, bearer shares do not require the shareholder’s identity to be listed in public records. The ownership of bearer shares is transferred simply by handing over the share certificate, making it a convenient and anonymous method of holding shares. However, due to concerns about transparency and money laundering, many jurisdictions, including Switzerland, have introduced strict regulations governing bearer shares.
Key Features of Bearer Shares
- Anonymity and Transferability: Bearer shares offer a high level of anonymity, as the shareholder’s identity is not recorded in the company’s register. Ownership is determined by possession of the physical share certificate, and these shares can be transferred without any formal documentation, making them easily tradable.
- No Register of Shareholders: Unlike registered shares, which require a company’s share registry to maintain a record of shareholders, bearer shares are not registered in the company’s records. This makes it harder for third parties to trace ownership, and it eliminates the need for the company to track who owns its shares.
- Risk of Misuse: Because bearer shares provide anonymity, they have been historically used for illicit purposes, such as money laundering, tax evasion, and hiding ownership in offshore companies. This has led many countries, including Switzerland, to impose strict regulations on the issuance and transfer of bearer shares to prevent abuse.
Bearer Shares in Switzerland
Switzerland has traditionally been a jurisdiction where bearer shares were widely used, especially in the financial and corporate sectors, due to the country’s banking secrecy and business-friendly environment. However, due to international pressure to increase financial transparency and combat money laundering, Switzerland has made significant reforms to the use of bearer shares.
- Regulatory Changes: In Switzerland, bearer shares were previously allowed, but following the implementation of the Swiss Financial Market Supervisory Authority (FINMA) regulations and adherence to international anti-money laundering standards, Swiss law has been revised to limit the use of bearer shares. As of 2015, Swiss law requires that bearer shares be converted into registered shares. This change is part of Switzerland’s commitment to comply with global transparency and anti-money laundering initiatives.
- Conversion Requirement: The Swiss Code of Obligations (CO) now mandates that all bearer shares in Swiss companies must be converted into registered shares by a specific deadline. Companies that still have bearer shares are required to record the identity of the shareholders in the company’s register. Shareholders of bearer shares are obliged to notify the company of their identity and request the conversion of their shares. Failure to comply with this regulation can result in the loss of voting rights and the inability to transfer shares.
- Transparency and Compliance: The shift away from bearer shares in Switzerland is aimed at improving transparency, preventing money laundering, and aligning the country with international standards, such as those set by the Financial Action Task Force (FATF). By requiring the identification of shareholders, Switzerland aims to make it more difficult for individuals to hide ownership of companies and assets behind anonymous holdings.
- Protection of Investor Rights: While bearer shares once provided anonymity, they also posed risks for investors due to the lack of a formal record of ownership. With the transition to registered shares, shareholders are more easily able to track ownership and exercise their rights, such as voting in shareholder meetings or receiving dividends, with greater transparency.
In Switzerland, the regulations surrounding bearer shares have significantly evolved to align with global efforts for financial transparency and anti-money laundering compliance. The country’s shift away from bearer shares toward registered shares aims to reduce the potential for abuse while ensuring that investors’ rights and corporate governance practices are clearly documented and protected.