What is the difference between
a 'bearer' bond and a 'registered' bond?
In the early days, bond ownership was private. Companies
seldom recorded the names of their investors. Whoever held
company bonds (the bearer)
could collect interest or sell the bonds without interference.
Such items are bearer
certificates. They usually carry the word 'bearer' or 'holder'
somewhere in the text. Quite often, bearer bonds promised
to repay notable individuals 'or bearer.'
Bearer bonds
Bearer bonds had significant problems. Companies never knew
who held their certificates, so communication was inefficiently
limited to notices in newspapers. The entire responsibility
for keeping securities safe, demanding interest payments,
and requesting loan principal was the bondholder’s. Thieves
negotiated bearer certificates as easily as rightful owners.
Fires and floods destroyed bearer bonds and replacement was
difficult or impossible. From a tax collector’s viewpoint,
bearer bonds left few taxable paper trails.
Registered bonds
Registered bonds have always been more secure. Companies
keep records of owners’ names and bond serial numbers.
Registered certificates usually show the names of owners on
the front. Owners may normally 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 means paper work
for companies. Tax collectors like registered bonds because
they can trace taxable income more easily.
Early
bonds were usually bearer bonds. Registered bonds started increasing
in popularity in the 1880s and dominated the scene by 1909.
Over the next half century, corporations gradually abandoned
bearer bonds. 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. |
