Bearer bond

From Wikipedia, the free encyclopedia

A bearer bond or bearer security is a certificate that represents a bond obligation of, or stock in, a corporation or other intangible property. It has been illegal to issue bearer bonds in the municipal or corporate markets in the United States since 1982. Wyoming and Nevada still allow them, however their typical uses of shifting ownership to avoid legal obligations run afoul of tax rules.

It is different from normal stock in that no records are kept of the owner, or the transactions involving ownership. Whoever physically holds the bearer bond papers owns the stock or corporation. This is useful for investors and corporate officers who wish to retain anonymity. The downside is that in the event of loss or theft, bearer bonds are extremely difficult to recover. In Central America this is typically the standard procedure for owning and running companies.

While bearer instruments are rarely created as such, a holder of commercial paper with the holder designated as payee can change the instrument to a bearer certificate by an endorsement. The proper holder simply signs the back of the instrument and the instrument becomes bearer paper. This is most often done with negotiable instruments such as promissory notes or checks. Great care should be taken with the security of the endorsed instrument, as it is legally almost as good as cash. Signing a false name or forging an endorsement is criminal fraud.