There are two basic types of shares: registered shares and bearer shares. Registered shares are issued in the shareholder’s name, whereas bearer shares – as the name suggests – are issued in the name of the respective bearer.
This small difference is quite significant in practice. It mainly affects the trading of shares.
Complicated transfer of registered shares
The transfer of registered shares to another person is a very complicated process. The holders of registered shares are all registered in the so-called share register. Each transfer of shares must be documented in the share register as well as on the share itself (endorsement), so that the sequence of the owners of the security is traceable. In the case of registered shares with restricted transferability, it is also necessary to obtain the consent of the respective stock corporation before the share can be transferred to another owner.
Therefore, registered shares are mostly the exception; only a few stock corporations issue registered shares. Most of the shares currently available on the market are bearer shares.
Transfer of bearer shares
By far the most stock corporations today issue bearer shares due to their simple transferability. In practice, this means that whoever owns the share is also the shareholder with all rights and obligations. He/she may pass the share on, sell it or trade it at any time. Unlike with registered shares with restricted transferability, this does neither require the consent of the corporation nor a formal transfer. This is how trading shares on the stock market is even made possible.
To a certain extent, the shareholder is thus anonymous in the case of bearer shares (at least in contrast to the issuing stock corporation or joint-stock company). Nevertheless, the shareholder holds all rights, in particular the voting right in the stock corporation linked to the share.
For the transfer from one holder to another, the only legal requirements are:
- the agreement between the transferring and the receiving shareholder
- the handover
- the full deposit of the required price
A legal term refers to bearer shares as “fungible items”. They are completely identical and uniform and embody identical rights and obligations. This is a prerequisite for the possibility of being traded on the stock market.