Bearer instrument

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A bearer instrument is a document that entitles the holder of the document to rights of ownership or title to the underlying property. In the case of shares (bearer shares) or bonds (bearer bonds), they are called bearer certificates.^[1] Unlike normal registered instruments, no record is kept of who owns bearer instruments or of transactions involving transfer of ownership, enabling the owner, as well as a purchaser, to deal with the property anonymously. Whoever physically holds the bearer document is assumed to be the owner of the property, and the rights arising therefrom, such as dividends.

Bearer instruments are used especially by investors and corporate officers who wish to retain anonymity. The OECD in a 2003 report concluded that the use of bearer shares is "perhaps the single most important (and perhaps the most widely used) mechanism" to protect the anonymity of a ship's beneficial owner.^[2] Physically possessing a bearer share accords ownership of the corporation, which in turn owns the asset.^[2] There is no requirement for reporting the transfer of bearer shares, and not every jurisdiction requires that their serial numbers even be recorded.^[2]

However, ownership (or legal entitlement) is extremely difficult to establish in the 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. In practice, however, many merchants and financial institutions will not pay a check presented for payment by anyone other than the named payee.

Bearer shares are banned in some countries because of their potential for abuse, such as tax evasion,^[3] movement of funds, and money laundering.^[4] The United States ended federal tax deductions for interest paid on bearer bonds in 1982.^[5] Bearer shares were abolished in the United Kingdom under section 84 of the Small Business, Enterprise and Employment Act 2015 (SBEE).^[6]