FID Trust International

Companies sometimes issue shares in bearer form (‘bearer shares’). This means that the shares are not listed on any share register but ownership rests with the person who has physical possession of the share certificate at a particular point in time.

The bearer certificate will state that the holder or bearer of the certificate is the legal owner of the share. In order to receive dividends, holders of bearer shares must send the company a voucher claiming the dividends to which they are entitled and that have been declared.

Whenever registered shares (other than bearer shares) are transferred from one person to another, the share register must be altered to reflect the change of ownership by removing the name of the transferor and replacing it with the name of the new owner. The process will involve the cancellation of the old share certificate and the issue of a new certificate in the name of the new owner.

Where the shares are held within the CREST system (see STSM131020), transfers are effected by changing the electronic records without movement of physical share certificates. When settling trades, the CREST system automatically notifies the registrar of the change of ownership.

A number of countries in Europe have a Central Securities Depositary (CSD) that holds shares and securities on behalf of investors. The CSD provides safe custody of the share certificates and maintains its own records of the beneficial owner. The CSD’s name appears on the share register as the legal owner of the shares and, upon a change of ownership, the CSD will simply change its records by book entry.

The ownership of a bearer share changes hands merely by passing the certificate physically from one person to another.

Shares in private companies cannot be offered for sale to the general public and are generally issued to the founders of the company. For public companies, there are two categories of share issue, primary and secondary.

A primary issue of shares is an issue that takes place when a company is first admitted to a stock exchange. Sometimes this is known as the Initial Public Offering (IPO) or offer for sale (STSM071080).

A secondary issue of shares is an issue of new shares by a company that is already listed on a stock exchange. Common examples are rights issues (STSM072020) and bonus or scrip issues (STSM072010).

Offers for sale and placing

To attract investors, a company that wants its shares to be listed on a stock exchange might consider an offer to the public (‘Initial Public Offer’ or ‘offer for sale’). An offer notice setting out the listing particulars will usually be published in the Financial Times and other national newspapers. The offer is open to the general public.

Offers of shares in major companies coming new to the market may be so popular that the offer is over-subscribed. In these circumstances, the company may allocate the available shares pro rata between the applicants or hold a ballot to decide which applicants are successful.

Offers for sale will usually be underwritten to protect against possible under-subscription.

An alternative to an offer for sale is a ‘placing’. In this case shares are placed with clients of the issuing house appointed to handle the issue. It follows that members of the general public are not able to participate. Placings tend to be cheaper and quicker to administer and are commoner than offers for sale.

Trading shares in the secondary market

After they have been issued, shares may be traded between investors. This is known as the secondary market.

Trading may take place on an organised stock exchange or trading platform and subject to the rules and procedures of that exchange (‘on-exchange’), or between investors directly (‘Over The Counter’ (OTC), or ‘off-exchange’).

There are two main types of market operated by stock exchanges, order-driven and quote-driven. For more details see STSM122010.

Bearer instrument and Stamp Duty

HMRC accepts that the ECJ and FTT decisions must equally be interpreted as applying to the charging of ad valorem stamp duty such as that imposed by FA99/SCH15/PARA1:

  1. on the issue of a bearer instrument in the UK; and
  2. on the issue of a bearer instrument outside the UK by or on behalf of a UK company, and
  3. a UK company means a company that is formed or established in the UK, or a Societas Europaea i.e. a European company, that has its registered office in the United Kingdom.

In these circumstances and until such time as the provisions of Schedule 15 are amended, HMRC will not seek to collect 1.5 per cent stamp duty under FA99/SCH15/PARA1on the issue of a bearer instrument.

Stamp duty is, however, chargeable (at the rate of 1.5 per cent) by virtue of FA99/SCH15/PARA2 on the transfer in the UK of the stock constituted by or transferable by means of a bearer instrument, if stamp duty was not chargeable on issue of the above mentioned bearer instrument, and:

  1. duty would be due as a transfer on sale if the transfer were effected by an instrument other than a bearer instrument; or
  2. the stock constituted by or transferable by means of a bearer instrument consists of units under a unit trust scheme.

In the case of a deposit certificate in respect of a single non-UK company, or an instrument issued by a non-UK company that is a bearer instrument by usage (and is not otherwise within the definition of ‘bearer instrument as described in FA99/SCH15/PARA3 ), the duty is 0.2 per cent of the market value of the stock constituted by or transferable by means of the instrument.

Secondary trading and transfer of a UK bearer instrument is also not subject to stamp duty, but a charge to Stamp Duty Reserve Tax (SDRT) can arise under certain circumstances. For advice on SDRT charges applying to bearer securities, see STSM067000.

Please contact us by telephone 0207 439 3400 (0044 207 439 3400 – International) or E-mail if you wish to incorporate Public Limited Company with Bearer Shares.