What is the difference between bonds and equity?

Answer 1

Assuming I understand your question correctly, and that we are discussing a company that remains in business in perpetuity, here goes:

A company's bonds are debt. If a company issues bonds with a face value of £9,000,000 it would have an interest rate say 6% - so for every year the bonds were held by parties other than the issuing company the company would need to pay 6% of £9,000,000 (£540,000) to all parties that held these bonds.

If another company was worth £10,000,000 and issued shares (also known as equity) with a face value of £9,000,000 the value of the shares being 90% of the value of the company, the parties that held the shares would be entitled to 90% of all the profit that was made by the company (after all taxes had been paid). If the company made no profit, nothing would be paid to the shareholders. Returns to share holders could vary from one year to the next.

The question of if a particular company should issue bonds or equity would be matter for its senior management, its advisers and prevailing financial market conditions.

Both bond and shares can be transferred to third parties like houses, cars or other property, they can be sold at what ever price the buyer and seller agree irrespective of the original price. Both share and bonds can be left in the Maximum Inheritance - over 20 years experience as an estate planner. Specialist in the will of the holder.