Recently, an amendment to the Companies Law was passed which annuls the use of bearer shares in Israel. Bearer shares, by contrast to shares issued under a name, are shares where the identity of the owner is not necessarily known to the company, and the company does not follow up on the identity of the shareholder in the shareholders' register. The company takes upon itself, in its Articles of Association, to recognize such person who lawfully holds a share certificate demonstrating his ownership of such share, as the shareholder.
According to the explanatory notes, the trade in bearer shares and the inability to follow up on their owners give rise to difficulties in enforcing tax laws and also with respect to money laundering. The danger is that these shares, which are transferable from person to person without the need to identify the shareholder and register him in the shareholders' register, can be used to conceal income and for money laundering purposes. This is because of the ability to conceal capital by means of holding bearer shares, and due to the difficulty in keeping track of transactions conducted with these shares. A similar danger is likely to arise with respect to bearer debentures and other securities.
For these same reasons as well as others, the possibility of issuing bearer debentures was annulled in USA back in 1982.
According to the information which was available to the Companies Registrar in 2013, the use of bearer shares in Israel was minor: there were some 12 companies, of which one was public, which had issued bearer shares, and only 6 of these were registered as active companies. Therefore, as per the explanatory notes, even if this information is not complete, it is sufficient to show the limited scope of use of bearer shares in Israel. Given the extremely narrow use of this mechanism, the legislature did not see any economic justification to manage a registration and supervisory mechanism which would enable the holders of bearer shares to remain unknown to the companies of which they hold shares while also enabling their identification by the regulatory authorities. In light of this, it was decided to entirely do away with this type of share.
It might also be noted that, in any event, for years the issue to the public of securities for bearer shares has been prohibited pursuant to Section 39 of the Securities Law, 5728-1968.
Reference: The Companies Law (Amendment No. 28), 5776-2016 (published in the Official Gazette on 17.3.2016). This law enters into force six months from the date of its publication.
