Bond Certificate

What is a Bond Certificate?

A bond certificate is a certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal.

A bond certificate is a document that states the details of the bond including the bond issuer’s name, the bond par value or face amount, the interest rate, and the maturity date. Bond certificates are in effect a receipt for the bondholder that shows evidence of the bond ownership as well as the terms of the bond.

What Does Bond Certificate Mean?

When companies begin the bond issuing procedures, they must have the state and federal authorities approve their bond authorization issuances. Then companies can have bond certificates printed for each bond they are authorized to issue.

A bond certificate is a legal document describing the indebtedness of a borrower and the terms under which that indebtedness will be paid back to the investor. The entity that issues a bond certificate is referred to as the issuer. This certificate is also intended to show the ownership by an investor of the debt owed by the issuer. The terms of the arrangement are stated on the certificate, including the following:

  • The name of the issuer
  • The amount to be paid back to the investor (known as the face amount)
  • The date of repayment
  • The rate of interest to be paid on the borrowed funds
  • A unique certificate identification number

If the bond is intended to be sold at a discount, rather than paying any interest, then no interest rate will be noted on the certificate.

It is not necessary for the issuer to send bond certificates to investors when a bond is registered, since this means that the company is maintaining an internal record of who owns each bond. If bonds are designated as bearer bonds, then whoever has possession of the related bond certificates can demand principal and interest payments from the issuer on the dates stated on the certificates. Thus, it is necessary for investors to maintain tight control over their bearer bond certificates.

Example

Although it is always a good idea for bondholders to get the bond certificates of any bonds they own, it’s not always required. For instance, a registered bond is documented by the issuing company and the bondholder is recorded in the company records. This bond holders don’t have to physically possess the bond certificate in order to prove they own the bond. The bond issuer will have a record of all the bondholders on file. If a bondholder sells his registered bonds, he must notify the issuing company to update their records.

bond certificate
American airlines bond certificate

Many bond certificates are unregistered and do not have the bondholder’s name printed on the front. These certificates are called bearer bonds. Bearer bonds must be locked away and secured because their title transfers with ownership. In other words, a bearer bond is exactly like cash. The person in passion has the title. If someone stole bearer bond certificates, they could try to collect interest payments or even sell them back to the issuing company.

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