Collectible Stocks and Bonds from North American Railroads     by Terry Cox

A guidebook and catalog of prices
(I do NOT buy or sell certificates on this website)

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Search the Coxrail database for descriptions of 23,700+ certificates from over 7,400 North American railroad companies.

The differences between bearer bonds
and registered bonds

Investors, whether as owners or creditors, have always valued their privacy and it remains especially true today. In the earliest days of joint stock ownership (corporations owned by many separate share holders), companies did not record stockholders' names. However, paper stock certificates were so delicate and prone to loss that most companies began recording owner's names very early in the United States.

It took much, much longer for companies to begin recording the names of its bond holders.

In most countries, individuals, groups of individuals, partnerships and corporations can loan money to companies and receive bonds in return. Bond certificates normally promise to pay interest at specific rates and to repay principal to bondholders at specific times. On the other hand, bonds may or may not mention the identity of bondholders.

It is crucial to understand that bondholders and bond owners are normally the same entities. It is not a requirement, however.

Bearer bonds. Whoever holds bonds are called bearers. Bearers can collect interest and sell their bonds with minimal corporate or government interference. Bonds that allow holders to sell the documents and collect interest and principal are called bearer certificates. They usually carry the word 'bearer' or 'holder' somewhere in the text.

It is very common for bearer bonds to promise to repay notable individuals 'or bearer.' Those notable individuals were generally people who underwrote the bond issuance. In many cases, those individuals bought the entire bond issuance at a discount and then profited by re-selling bonds to other investors at higher prices.

Bearer bonds have significant problems. Companies, municipalities and states never know who holds their certificates. Communication with bondholders is very inefficient, being mostly limited to notices in newspapers. Bondholders assume total responsibility for keeping securities safe, demanding interest payments, and requesting loan principal. Thieves can negotiate bearer certificates as easily as rightful owners. Fires and floods can destroy bearer bonds and replacement can be difficult or impossible. From a tax collector’s viewpoint, bearer bonds leave few taxable paper trails.

Such threats to profitable ownership over extended periods are the reasons bearer bonds disappeared from the corporate landscape. They survived a couple decades longer among municipalities and public entities, but essentially all those bearer bonds are now gone, too.

Registered bonds have always been more secure. Companies keep records that bondholders' names with specific serial numbers. Registered certificates usually show the names of owners on the fronts. Owners may sell bonds to anyone they wish, but they must inform companies so clerks can transfer registration. Companies forward interest payments and principal to registered bond holders. On the flip side, registration shifts the responsibility for paper work to companies. Tax collectors like registered bonds because they can trace taxable income more easily.

Early bonds were usually bearer bonds. The popularity of registered bonds began increasing throughout the 1880s and dominated the scene by 1909. Over the next half century, corporations gradually abandoned bearer bonds completely. Curiously, local and regional governments in the U.S. continued to use bearer bonds until the U.S. Internal Revenue Service outlawed their use after 1982.

Appearances. The formats and appearances of bonds were matters of corporate decision. Designs followed no set rules. Prior to the 1850s, most bearer bonds were printed in horizontal formats (wider than they were tall.) Bearer bonds usually had coupons attached that sequentially came due every six months.

From the 1880s forward, bearer bonds were normally printed in vertical formats (taller than they were wide). During that period, registered bonds were normally printed in horizontal formats and did not carry coupons. The American Bank Note Company normally designed their bonds so the word "Registered" appeared in a colored underprint. I stress again, however, that there were no set rules.

Once bearer bonds began disappearing starting around 1900, registered bonds again switched formats and ultimately were printed exclusively in vertical formats.


Bearer bond from The Blue Ridge Railroad Company, 1869.


Registered bond from the Carolina Clinchfield and Ohio Railway, 1908

 

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Last updated October 5, 2015.

 

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