Shares are part of the ownership of a company's property and the holder of the shares is the shareholder. A bond is a certificate of debt and the holder is a creditor, a completely different concept. When a listed company goes bankrupt, it has to pay off its debts before the remaining assets can be distributed to shareholders. The priority enjoyed is different.
1, What does a bond mean in layman's terms
Bonds are debt instruments that the government, financial institutions, industrial and commercial enterprises and other institutions want to issue to investors when they borrow funds directly from the society and promise to pay interest at a certain rate and repay the principal according to the agreed terms.
Corporate bonds are marketable securities issued by a company in accordance with the statutory procedures, with an agreement to repay the principal and interest within a certain period of time. A corporate bond is a form of corporate debt. Based on the issuance of a corporate bond, a legal relationship between the holder of the bond and the issuer of the bond is formed with the repayment of principal and interest as the content of the debt. Therefore, a corporate bond is a debt instrument issued by the company to the bondholder.
Bond issuance is the legal act of the issuer offering to issue bonds representing certain claims and terms of payment to investors for the purpose of borrowing funds in accordance with the procedures stipulated by law, and bond issuance is one of the important forms of securities issuance. It is the process of raising funds in the form of bonds through which the issuer transfers the bonds to its initial investors in the capacity of the ultimate debtor.
2,The difference between bonds and shares
The legal nature is different stocks are certificates of ownership, shareholders are legally entitled to specific property rights, i.e. equity, and the stockholder is the owner of the company; bonds are a creditor's certificate, and the legal relationship between the bondholder and the bond issuer is one of debt. The legal rights and obligations are different. The holder of shares is a shareholder of the company, a member of the company, entitled to attend and vote at general meetings, to participate in the company's business decisions, to share in dividends and the distribution of surplus property, but at the same time bear the risk and liability within their own shares, while the holder of a company's bonds is an outsider of the company, a mere creditor of the company, entitled to receive interest and recover the principal according to the agreed period, but not to participate in the company's business They do not have the legal right to participate in the company's operations or to share in the company's residual assets, but are entitled to priority over the company's shareholders in the settlement of debts in the event of liquidation. Bondholders are not liable for the company's operations. The maturity period differs and the risk and manner of return differs. In addition, dividends are paid out of after-tax profits and interest on bonds is paid out of pre-tax profits.
3, What is debt financing?
Debt financing is the financing of an enterprise by means of borrowing money. With the funds obtained from debt financing, the enterprise first bears the interest on the funds, and in addition has to repay the principal of the funds to the creditor when the borrowing is due. The characteristics of debt financing determine that its use is mainly to solve the problem of shortage of working capital of the enterprise, rather than for expenditure under capital.
Debt financing methods for private enterprises can be divided into six main categories.
1, The private credit of the owner of a private enterprise, which is equivalent to private borrowing from the private sector. This is a unique way of debt financing for private enterprises; that is, it is the most unregulated way of enterprise financing and the most common way of financing within private enterprises. The amount of financing is generally small and the stability is difficult to determine.
2, Inter-enterprise commercial credit. This is a method of raising funds from supply manufacturers in the form of purchase money payable and bills payable, i.e., through inter-enterprise commercial credit, using deferred payment to purchase the products required by the enterprise, or using advance payment and deferred delivery of products, thereby obtaining a short-term source of funds.
3, Leasing. Modern leasing is a combination of commodity credit and capital credit financing methods, for the demand side of the enterprise, it has the use of leasing business "borrowing chicken to lay eggs, to egg to pay back the money" characteristics, in order to solve the shortage of funds for enterprises, reduce capital occupation, development of production, improve efficiency. At present, there are many forms of leasing, such as operating leasing, agency leasing and financial leasing.
4, Loans from banks or other financial institutions. This method can achieve the purpose of financing relatively easily and quickly, and its specific ways are bill discounting, short-term borrowing, medium-term borrowing and long-term borrowing. However, it is very difficult to obtain a large number of loans from banks and other financial institutions in a timely manner, because lenders attach particular importance to the security of funds and put forward systematic control of financial indicators such as gearing ratio, growth rate, profitability, etc., especially when the enterprise is temporarily in difficulty, it is difficult to meet a series of requirements of banks.
5, Financing from the capital market. Enterprises can raise funds by issuing bonds in the financial market, which are mainly used to raise long-term funds.
6, Use of foreign capital. The main forms are seller's credit, buyer's credit, compensatory trade, foreign government loans, loans from international financial institutions, etc. The above lists six types of enterprise debt financing, for the enterprise, the type of debt is diverse, is a combination of a variety of forms of debt, the enterprise should be based on their own operating conditions, the capital situation and the conditions available, to determine the enterprise's debt structure, and with time and changes in business conditions at any time to adjust this debt structure.
