- Canadian Tax Resource Blog - http://blog.taxresource.ca -

Bonds And Debentures

When a company or government needs to raise funds to purchase assets or implement programs they may wish to borrow money by issuing bonds or debentures. Generally speaking, a bond is an interest bearing debt issued that specifies the principal or face value of the bond and when interest will be paid to the bond holders. Interest is paid at a specified rate on a specified period.

Specifically bonds are secured against certain assets of the borrowing company. For example, a company may wish to purchase manufacturing equipment and can issue a bond that is secured to this equipment. If the company were to default on the bond (that is not pay interest), then the bondholders can order the equipment be sold to satisfy their debt. On the other hand, debentures are unsecured bonds.

Bonds and debentures will have a face value but may be bought or sold for more or less than their face value.