What is a 'Bearer Form'

A bearer form is a security not registered in the issuing corporation's books, but which is payable to its bearer, that is, the person possessing it. Unlike normal registered instruments, no record is kept of who owns bearer instruments or of transactions involving transfer of ownership


Securities can be issued in two forms: registered or bearer. Most securities issued today are in registered form. Registered form means the issuing firm keeps records of a security's owner and mails out payments to him or her. The name and address of an owner of a registered security is engraved on a certificate, and dividend or interest payments can only be made out to the named security owner. To transfer ownership, the current owner must endorse the certificate which is presented to the issuer’s transfer agent. The transfer agent verifies the endorsement, cancels the certificate, and issues a new one to the new owner. The issuer, then, has a record of who owns the security during a period of time and is able to make interest and dividend payments to the appropriate owner. However, it takes a while for a new security to be issued in another’s name.

An issuer of a bearer form security keeps no record of who owns the security at any given point in time. This means that the security is traded without any record of ownership, so physical possession of the security is the sole evidence of ownership. That is, whoever produces the bearer certificate is assumed to be the owner of the securities and can collect dividend and interest payments tied to the security. Ownership is transferred by transferring the certificate, and there is no requirement for reporting the transfer of bearer securities. Securities in bearer form can be used in certain jurisdictions to avoid transfer taxes, although taxes may be charged when bearer instruments are issued. Two types of bearer form certificates are bearer bond and bearer stock certificates.

A bearer bond, also known as a coupon bond, has part of its certificate as a series of coupons, each corresponding to a scheduled interest payment on the bond. When an interest payment is due, the coupons must be clipped from the security and presented in order to receive interest payments. For this reason, interest payments on bonds are referred to as coupons. The bearer of the bond certificate is presumed to be the owner who collects interest by clipping and depositing coupons semi-annually. The issuer will not remind the bearer of coupon payments.

A bearer stock certificate is a negotiable instrument without endorsement which is transferred upon delivery. Someone who has physical possession of the stock certificate in bearer form is entitled to exercise all legal rights associated with the stock. Dividends are payable upon presentation of dividend coupons, which are dated or numbered. Most jurisdictions now require corporations to maintain records of ownership or transfers of shareholdings, and do not permit share certificates to be issued to bearer.

Bearer form instruments are used especially by investors and corporate officers who wish to retain anonymity, however, they are banned in some countries because of their potential for abuse in areas of tax evasion, movement of funds, and money laundering.

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