Bearer instrument
Encyclopedia
A bearer instrument is a document that indicates that the owner of the document has title
to property
, such as share
s or bonds
. Bearer instruments differ from normal registered instrument
s, 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 is assumed to be the owner of 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 tax
es, although tax
es may be charged when bearer instruments are issued.
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.
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
to property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
, such as share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
s or bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. Bearer instruments differ from normal registered instrument
Registered instrument
A registered instrument is a form of property, such as shares or bonds, where records are kept of who owns the underlying property, or of the transactions involving transfer of ownership...
s, 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 is assumed to be the owner of 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
Theft
In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...
.
In general, the legal situs
Situs
In law, the situs of property is where the property is treated as being located for legal purposes. This may be important when determining which laws apply to the property, since the situs of an object determines the lex situs, that is, the law applicable in the jurisdiction where the object is...
of the property is where the instrument is located. Bearer instruments can be used in certain jurisdictions to avoid transfer tax
Transfer tax
A transfer tax is a tax on the passing of title to property from one person to another.In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of...
es, although tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es may be charged when bearer instruments are issued.
Under the Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
, a negotiable instrument
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
(such as a check
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
or promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
) 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.
See also
- Bearer bondBearer bondA bearer bond is a debt security issued by a business entity, such as a corporation, or by a government. It differs from the more common types of investment securities in that it is unregistered – no records are kept of the owner, or the transactions involving ownership. Whoever physically...
- Lottery in the USA
- Scratch cardsScratchcardA scratchcard is a small card, often made of thin paper-based card for competitions and plastic to conceal PINs, where one or more areas contain concealed information which can...
- Token moneyToken moneyToken money is money made from tokens of some form, as opposed to account money. Coins are token money, as are paper notes.Token money has a strong privacy feature in that it works as money without the intervention of any other party in each transaction between two parties. Privacy makes money...