Bearer Shares: Stripping Them Bare
In a little known section of the Jamaican Companies Act, provision exists for a company limited by shares, if authorized by its Articles, to issue a warrant stating that the bearer of the warrant is entitled to the shares specified.
A bearer instrument is a document that indicates that the bearer of the document has title to property, such as shares or bonds. Bearer instruments differ from normal registered instruments, in that no records are kept of who owns the underlying property, or of the transactions involving transfer of ownership. Whoever physically holds the bearer papers owns the property. This is useful for investors and corporate officers who wish to retain anonymity, but ownership is extremely difficult to recover in event of loss or theft.
The right of a company to issue bearer warrants or bearer shares is not by any means peculiar to Jamaica but many would be surprised at the international controversy which surrounds the concept today.
There are many respectable reasons for bearer securities such as bonds. As one writer says : "They are as good as cash so long as they are not counterfeit...Take a ...note from your wallet, and and you will find the words 'I promise to pay the bearer on demand the sum of...'". However, it is said that there are few respectable reasons for bearer shares because the only rationale for their being is to disguise the true ownership of a company.
A share warrant differs from a regular share certificate in the following ways:
• the bearer of the warrant is not entered into a register;
• the bearer of the warrant is entitled to the shares specified in the warrant;
• the shares were transferable by delivery of the warrant (and so it is not possible for anyone, including the company, to track transfers of ownership);
• a share warrant is a negotiable instrument and, if stolen and subsequently sold to a bona fide purchaser for value without notice of the theft, the purchaser could enforce against the company payment of coupons for dividends due in respect of the warrant; and
• coupons for dividends could be attached to the warrant (and, in such cases, the company would distribute dividends to the bearer of the warrant only when a physical coupon was presented).
The advantages of bearer shares include confidentiality, ease of dividend payments, simple delivery of bearer shares on death without the need for probate/succession procedures and easy assignment for corporate services providers.
The concept of bearer shares is however, no longer being accepted as being harmless and one of the primary aims of the Global Forum on Transparency and Exchange of Information about Tax Purposes of the Organization for Economic Co-operation and Redevelopment (OECD), of which Jamaica is a member, is to have member states immobilize or abolish bearer shares completely.