Justify the following statement : Bond holder is creditor of the company.

Answer: The statement is correct, because a bond is a debt instrument and the bond holder has lent money to the company.

• A bond, like a debenture, is an acknowledgement of debt issued by a company under its common seal or with a certificate, promising repayment after a fixed period.
• The money given by bond holders is borrowed capital of the company, not owned capital.
• Bond holders get a fixed rate of interest at fixed intervals whether the company makes a profit or not.
• They are repaid on maturity and have priority over shareholders for repayment on winding up.
• They have no voting rights and do not take part in management.

Thus a bond holder is a creditor of the company, not an owner.