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

The statement is correct. A bond represents borrowed money, not ownership, so a bond holder stands in the position of a creditor (lender) of the company — entitled to fixed interest and repayment, but not to ownership rights like voting or a share in profits.

A company raises capital in two broad ways: from owners (by issuing shares to shareholders) and from lenders (by borrowing). A bond (in the Indian context, essentially a debenture) is a debt instrument issued by a company acknowledging that it has borrowed a sum of money and promising to repay it with interest.

Reasons the bond holder is a creditor and not an owner:

• Nature of the instrument: a bond is an acknowledgment of a loan given to the company; the money subscribed is borrowed capital, not ownership capital.
• Fixed return: the bond holder receives a fixed rate of interest, which is a charge that the company must pay whether or not it earns profit — exactly like any other creditor.
• No ownership rights: a bond holder has no voting rights and no say in the management of the company; these belong only to equity shareholders (the owners).
• Repayment on maturity: the principal amount is repaid to the bond holder on maturity, whereas share capital is normally not returned during the company's life. …