Nevertheless, some of these techniques seem very attractive, and certainly beg the question, "If one is compliant with all government agencies, is there a moral or ethical dilemma in structuring one's assets in a way that ensures maximum protection? Although I will not address the ethics of specific asset protection strategies in this post, I will discuss the concept (and dangers) of Bearer Share Corporations.
However, a "Bearer" share is a share certificate issued to "Bearer," or whomever is in possession of the share certificate. The best way to conceptualize this is to think of the share similar to a dollar bill: there is no record of ownership; whomever possesses the bill (or the share certificate) is the owner. The obvious advantage to this is that such ownership can be kept strictly confidential, and the entity can act without any specific person tied to it. This is true in theory, but in practice, it has proved to be one of the most aggressive and risky strategies one can implement.
Bearer shares are illegal in most states, but in the perennial asset protection states of Nevada and Delaware, they are legal. Nonetheless bearer shares simply do not offer the level of secrecy claimed by advocates. First, creditors could ask at a debtor’s examination or deposition a question like “In the last five years, have you ever held shares in any corporation?” If one ever held bearer shares during this time (e.g., if one ever possessed a bearer share during this time), they would be compelled to answer “Yes” or otherwise be subject to perjury.
Second, if a court cannot determine who holds the bearer shares it can simply impute ownership to the person or persons most directly involved with the corporation. Thus, if a person signs on a corporation’s bank account, that person can simply be deemed to be the owner of the corporation whether or not the bearer shares can be found. This is extremely problematic since the owner typically distances himself from operations in order to preserve anonymity. Also, if the bearer shares cannot be located, the court may be able to simply deem the corporation to be dissolved.
I read a disturbing phrase on a website advertising the creation of Nevada Corporations with bearer shares, claiming that one can walk into a courtroom and hand off the shares to a cousin waiting outside, and be able to answer that they do not own any such shares, and then pick them up on the way out. The first (and obvious) problem with this is that the question will likely be followed up with the questions of "Have you owned such shares at any time in your life?" which would need to be answered honestly. Next, if one really desires to hide behind a transfer as simple as giving it to a cousin on the way into a courtroom, then one also has to stand behind the consequences of a transfer in ownership such as taxes, legality, etc. Handing off shares could result in thousands and thousands of dollars (or even millions) in taxes.
Bearer shares really do sound intriguing, and the concept of the whole thing is attractive, I admit. But we have to consider the dangers that come with it. Asset Protection Planning is not anything to take lightly, and although some of these techniques and strategies come across as sexy and exotic, the practicality (and consequences) of such actions need to be realized. And if one is taking advice from a movie like The Wolf of Wall Street, some additional introspection is probably warranted.