Registered and coupon: Though investors fully understand the difference in form be tween registered and coupon bonds, they do not understand so well all the consequences of the two forms. The distinction in form is simple enough. A coupon bond has attached to it a sheet of what in effect are small pro missory notes representing the interest. One falls due each interest date. To collect his interest the owner must " clip " his coupon and forward it, presumably through his regu lar banker, to the place of payment named in the bond and coupon for collection. Transfer of title requires no formality. Property in the bond passes by transfer of the document. A registered bond, on the other hand, has the name of the owner entered upon it, and also on the books of the corporation, kept either at the office of the corporation or by some bank or trust company acting as fiscal agent of this corporation. The company thus has the address of the bondholder and at the proper dates mails the checks for interest to him. Ownership of a registered bond can be transferred only by changing the name regis tered on the company's books. That is, with respect to the transfer of title, registered bonds stand in the same position as stock.
Relative advantages of the two forms from the standpoint of the investor are the ready transferability of coupon bonds, and the safe guarding from theft of the registered form. Many considerations, however, argue strongly in favor of the coupon form. Owners of reg istered bonds may find in the comparative difficulty of transfer a greater disadvantage than they anticipate. It may cause delay in selling, and especially such delay in getting the proceeds of a sale as to be embarrassing. A broker cannot safely sell until he is certain there will be no difficulty about effecting a transfer. The corporation's agent for registry, if competent, is bound to be extremely care ful about his authority to transfer, and may cause long delay in effecting a delivery by in sisting on better evidence than that first sup plied him. Procuring a transfer in the case of settling an estate always causes considerable trouble. A dealer cannot safely register a bond in the name of the purchaser and send it forward with draft for collection. The registry fixes title, and legal situations un known, perhaps, to the purchaser as well as to the dealer, may intervene to deprive the dealer of his lien. Very possibly before pay ment and delivery the purchaser may die. In that event a great deal of trouble and long delay may take place before the dealer can get paid.
From the standpoint of the purchaser regis tration may affect the situation of his estate with regard to the inheritance tax. In one case a man in New York State left his pro perty by will to a younger man, whom the testator had always treated as his son, but never formally adopted. Some bonds of a
corporation of another jurisdiction formed part of the estate. The jurisdictions took different views of the situs of the property represented by the bonds. Under the law of the jurisdiction of the corporation property in a debt has its situs where it is owed, and the bonds therefore formed an estate of the testator in that jurisdiction. According to the law of New York State the situs of a debt lies at the domicile of the creditor, and the bonds therefore formed part of the testator's estate in New York. As a consequence the estate had to pay an inheritance tax on those bonds in both jurisdictions. To aggravate the situation the tax was heavier in both juris dictions because of the collateral inheritance. The point of the story is that the testator, against the advice given on general principles by the dealer selling the bonds, had insisted on having them registered. Though the law would have been the same for coupon bonds, the situs of the corporation would have had no means of acquiring jurisdiction to enforce its tax. As it was, the agent for the transfer had no right to make it without evidence that the estate had paid the inheritance tax. In such a case as this it would hardly be accounted moral turpitude to dodge one tax if possible. Jurisdictions are much in conflict over this very point, and for that reason alone, if for no other, it would be well to keep on the side of safety by not registering. Some in vestors, however, insist on having registered bonds.
Interchangeable : Because some investors want registered bonds and others will take only those in the coupon form, a corporation confers a privilege of some value to the pur chaser in making its bonds interchangeable. If that is the case the corporation will, on request from the holder of a bond in one form, deliver in its place a bond in the other form. Usually only the big corporations with large bond-issues outstanding extend this privilege. To carry it out requires considerable trouble on the part of the corporation or its agent for making the transfers.
Registerable as to principal: Many corpora tions, perhaps most with bond-issues under a number of million dollars, do not issue bonds registered both as to principal and interest, but issue coupon bonds which are registerable as to principal. When issued, the bonds are all alike coupon in form, but have blanks on the back in which the name of an owner may be indorsed. The corporation provides for enter ing this name on the company's books, and the bonds become registered as to principal. Coupons remain attached to the bond, and interest is collected by their means as in the case of any coupon bond. The coupon bond form presented for illustration provides for such registration as to principal.