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Bond (as a source of finance)

Where money to be raised is divided into smaller units (bonds) and potential lenders are invited to lend money to the business for a fixed period of time (usually long-term) and, usually, at a fixed rate of interest although the reward for investment might not be interest but other benefits, for example a supporters’ bond used to rebuild a stand at a rugby club could be reduced season ticket prices. Bond holders, (like debenture holders) are likely to have priority over all shareholders and, unlike dividends on shares, the interest must be paid even if the firm is not making a profit. However, unlike shareholders, bond holders do not own the company and do not have a right to vote. Consequently, there is no dilution of control.

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