Bearer instrument

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A bearer instrument is a document that entitles the holder of the document rights of ownership or title to the underlying property, such as shares or bonds. Bearer instruments differ from normal registered instruments, in that no record is kept of who owns the underlying property, or of the transactions involving transfer of ownership. Whoever physically holds the bearer document is assumed to be the owner of the property. This is useful for investors and corporate officers who wish to retain anonymity, but ownership (or legal entitlement) is extremely difficult to establish 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.

In the United States, 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.[citation needed][dubious ]

Bearer shares are banned in some countries, because of their potential for abuse, such as tax evasion,[1] movement of funds and money laundering.[2] The United States has since 1982 disallowed a tax-deduction for interest paid on bearer bonds.[3][4]

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  1. ^ David Leigh, James Ball, Juliette Garside and David Pegg, "Catalogue of malpractice endorsed by bankers laid bare in HSBC files," The Guardian (Sunday 8 February 2015). Retrieved 10 February 2015.
  2. ^ "Bearer Bonds: From Popular to Prohibited". Investopedia. 
  3. ^ Tax Equity and Fiscal Responsibility Act of 1982
  4. ^ "Section 11- Role Of The Transfer Agent". Trust Examination Manual. Federal Deposit Insurance Corporation. May 10, 2005. Retrieved October 3, 2013.