Bearer instrument

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A bearer instrument is a document that indicates that the bearer of the document has title to property, such as shares or bonds. Bearer instruments differ from normal registered instruments, in that no records are kept of who owns the underlying property, or of the transactions involving transfer of ownership. Whoever physically holds the bearer bond papers owns the property. This is useful for investors and corporate officers who wish to retain anonymity, but ownership is extremely difficult to recover in event of loss or theft.

In general, the legal situs of the property is where the instrument is located. Bearer instruments can be used in certain jurisdictions to avoid transfer taxes, although taxes may be charged when bearer instruments are issued.

The United States has attempted to deal with tax evasion concerns by requiring a person who accepts a bearer instrument having a face value in excess of $10,000.00 as payment for goods or services in the ordinary course of business to file an information return with the Internal Revenue Service identifying the party who transferred the instrument. Failure to file the required return (Form 8300) is a felony under federal law.

Under the Uniform Commercial Code, a negotiable instrument (such as a check or promissory note) that is payable to the order of "bearer" or "cash" may be enforced (i.e. redeemed for payment) by the party in possession. The payee (i.e. the person named in the "pay to" line) may also convert an instrument into a bearer instrument by endorsing (signing) the back. This is the letter of the law: in practice many merchants and financial institutions will not pay a check presented for payment by anyone other than the named payee.

In earlier times many forms of government issued currency were actually bearer instruments giving the bearer property title to precious metals.