Corporate Bond
Corporate Bond
- A Corporate Bond is a debt instrument.
A corporation will issue a Corporate Bond for a specified period of time in
excess of one year as a means of raising capital. In essence, a corporate bond
is a promise by a corporation to repay the amount borrowed (principal) plus
interest (in the form of coupons) on a specified maturity date. A corporate bond
is a form of debt financing (borrowing by the corporation) in which the investor
(buyer) of the bond becomes a creditor of the corporation rather than becoming
an owner of any equity in the corporation. As a creditor the bond holder has a
preference over a shareholder in the event of
dissolution or bankruptcy. A bond
might be sold at above or below par (the amount paid out at maturity), but the
market price will approach par value as the bond approaches maturity. The riskier
the corporate bond issue (junk bonds), the higher the interest rate paid to the bond
holder. Unlike bonds issued by municipal, county or state governments, interest
payments on corporate bonds are not exempt from federal income
tax.
Unlike common stockholders, bondholders have no voting rights by virtue of being bondholders. In certain circumstances and subject to authority being properly granted to the Board of Directors, the Board of Directors may grant voting rights to bondholders.
Types of Corporate Bonds include the following:
● Callable Bonds which the issuing corporation may repay prior to maturity.
● Collateral Trust Bonds which are secured by corporate property.
● Convertible Bonds which are exchangeable for stock or other bonds at a specified rate.
● Debentures which are unsecured.
● Equipment Trust Bonds which are secured by equipment with the legal title of equipment vested in a trustee.
● Mortgage Bonds which are secured by real property.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
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Unlike common stockholders, bondholders have no voting rights by virtue of being bondholders. In certain circumstances and subject to authority being properly granted to the Board of Directors, the Board of Directors may grant voting rights to bondholders.
Types of Corporate Bonds include the following:
● Callable Bonds which the issuing corporation may repay prior to maturity.
● Collateral Trust Bonds which are secured by corporate property.
● Convertible Bonds which are exchangeable for stock or other bonds at a specified rate.
● Debentures which are unsecured.
● Equipment Trust Bonds which are secured by equipment with the legal title of equipment vested in a trustee.
● Mortgage Bonds which are secured by real property.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.