Comparative: Registered Shares vs. Bearer Shares

In the vast world of finance, the words “buy” and “sell” often lead us to a common place: the stock market. But have you ever wondered what exactly you are buying or selling when you acquire a “share”? Welcome to the fascinating universe of shares, where “registered shares” and “bearer shares” move as protagonists in the grand theater of the economy.

At Panamá Legal Lab, we are committed to helping you understand this financial and legal framework. We want you to make well-informed decisions, and for that, it is crucial to understand the difference between registered shares and bearer shares. Both have their role in the financial spectacle, but knowing their differences and similarities can make the difference between applause and a standing ovation in your career as an investor. So sit down, prepare your favorite cup of coffee, and join us on this journey of discovery. Let’s unveil the veil surrounding registered and bearer shares and see how each can fit your financial and legal needs.

Definition and Characteristics of Registered Shares

Registered shares, as their name suggests, are those in which the **name of the shareholder—the owner—**is recorded directly on the share certificate. These are more than mere ownership titles; they are a contract between the company and the investor, a contract that takes on a personal character because of the holder’s name written on it.

We can divide registered shares into two categories: common and preferred. Common shares generally grant their owners voting rights and participation in the company’s dividends, while preferred shares often provide a fixed dividend rate and have priority over common shares in terms of dividend payments and in the event of the company’s liquidation.

A key feature of registered shares is their level of confidentiality. Although the owner’s name is written on the share certificate, this does not mean that the name becomes public. On the contrary, registered shares maintain a high level of privacy, as they are not recorded in any public document. All information is kept in the share certificate and in the company’s share register, both of which are 100% private and confidential.

But what happens when you want to sell your registered shares? This is where the endorsement or transfer process comes into play. To transfer registered shares, the owner must endorse the share certificate or sign a transfer document in favor of the new owner. This is also a private document, keeping the confidentiality of the transaction intact.

Registered shares are a safe and confidential way to invest in a company, providing investors with a balance between ownership rights, financial benefits, and privacy.

Definition and Characteristics of Bearer Shares

In contrast to registered shares, bearer shares do not have the shareholder’s name recorded on the certificate. In these cases, merely holding the share certificate is enough to be considered the owner. The identity of the owner, therefore, is anonymous and can easily change as the certificate is transferred from hand to hand.

Like registered shares, bearer shares can also be common or preferred, granting their holders similar rights and benefits but with an additional degree of anonymity.

However, it is important to note that bearer shares have faced certain restrictions in recent years. According to Law 48 of August 6, 2013, in Panama, bearer shares must be immobilized, and the original certificates must be held in custody by a resident agent or an accredited institution for that purpose. This change has led many banks to stop working with this type of share.

Comparison Between Registered and Bearer Shares

Now that we know the main characteristics of both types of shares, let’s take a detailed look at their comparison:

• Confidentiality: Both types of shares guarantee a degree of confidentiality for the holder. In the case of registered shares, the holder’s identity is recorded only in private documents, while in bearer shares, the holder’s identity remains anonymous because it is not written on the certificate.

• Transfer process: Registered shares require an endorsement or a transfer document signed by the holder to be transferred. On the other hand, bearer shares are transferred simply by handing the physical certificate to the new person.

• Relationship with banks: Given the mandatory immobilization of bearer shares in Panama under Law 48 of 2013, many banks have chosen not to work with this type of share, which can limit the options for the bearer shareholder.

• Legislation: Registered shares are not subject to the restrictions imposed on bearer shares by Law 48 of 2013. This flexibility can make registered shares more attractive to some investors.

Knowing these differences and similarities is crucial when making informed investment decisions. Each type of share has its advantages and disadvantages, and the choice depends on the investor’s individual needs and preferences.

Impact of Law 48 of 2013 on Bearer Shares

Law 48 of 2013 marked a before and after in how bearer shares are managed in Panama. This law adopted measures related to the immobilization of bearer shares of corporations incorporated in the country. Under this regulation, the original bearer share certificates must be held in custody by the company’s resident agent or by a duly authorized institution.

This measure was implemented as a way to increase transparency and combat money laundering and other illegal activities. However, it has also led many banking institutions to decide not to work with bearer shares, which has restricted the options for holders of this type of share. In this context, registered shares have gained greater prominence due to their flexibility and fewer restrictions.

Pros and Cons of Registered and Bearer Shares

Both registered and bearer shares have their advantages and disadvantages, which vary according to each investor’s individual circumstances. Let’s take a look at some pros and cons:

Registered Shares:

Pros:

• Greater degree of security: since the holder’s name is written on the share certificate, it is less likely that the shares will be stolen or transferred without consent.

• Greater acceptance by banks: unlike bearer shares, registered shares have not faced significant restrictions from banks.

• Flexibility in transfer: the transfer of registered shares can be documented, providing a record of the transaction.

Cons:

• Transfer process: requires the holder’s signature and a transfer document, which can make the process a bit more laborious.
  
  

Bearer Shares:

Pros:

• Anonymity: they provide a greater degree of anonymity since the holder of the shares is not written on the certificate.

• Ease of transfer: they can be transferred simply by handing over the physical certificate to the new person.

Cons:

• Legal restrictions: Law 48 of 2013 has imposed significant restrictions on bearer shares in Panama.

• Lower acceptance by banks: due to legal restrictions, many banks have stopped working with bearer shares.