Corporate Bonds in New York

What are Corporate Bonds?

Corporate Bonds include secured and unsecured bonds, as well as debentures and notes. The company offers them at par value or otherwise for money or property, tangible or otherwise. They can also be issued for services which have actually been rendered or for promises to pay or perform services in the future.

What are the rights of bondholders?

As a rule, it is the contractual terms of the instrument under which the bonds are issued that prescribes to bondholders their rights. An example would include a trust indenture, which is an indenture bond that provides for the appointment of a trustee to act on behalf of the bondholder. Inspection or voting rights which are accorded the bondholder must, however, be provided for in the certificate of incorporation.

Convertible or exchangeable shares and bonds

Convertible securities are ones whose terms allow them to be exchanged for other securities. These may include bonds which are convertible into shares or preferred shares which may be converted into common shares. Absent a clause in the certificate of incorporation proscribing this, a corporation may issue shares or bonds which can be converted or exchanged into shares of any other class or series, cash, other property, indebtedness or other securities either of the corporation or of another. There exist four scenarios for the shares or bonds to become convertible or exchangeable. This may be done at the option of the holder, of the corporation, of another person or upon the occurrence of a specified event.

Which limitations apply

A corporation may only issue bonds or shares which are convertible into or exchangeable for other shares of the corporation if a sufficient number of authorized – but unissued – shares or treasury shares of the appropriate class or series are reserved by the board to be issued strictly for the purpose of satisfying the conversion or exchange privileges. Treasury shares or stock is stock which is reacquired by a company to prevent it from becoming outstanding.

Should the issuance of convertible or exchangeable stocks or bonds lead to a conversion which would result in the corporation receiving less than the minimum consideration which must be received upon the new issuance of shares, then it may not do so. Finally, at least one class of common stock which is not convertible or exchangeable into anything other than common stock must remain outstanding.

What is the result of a conversion?

The conversion or exchange of shares leads to them being canceled, meaning they will revert to the status of being authorized but not issued. The same holds true of converted or exchanged bonds.