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Difference between Stock and Bonds?

These are main difference between a stock and a bond.

Type of Financial Instrument: Equity
Order of claim: Dividends can be issued only after interest on all debts includes bonds is fully paid.
Legal obligations to holders: Dividends may be varies or omitted at the discretion of the board of directors, no principal or maturity dates are involved.
Rights of holders: Voting stockholders can influence management by electing members of the board of directors.
Tax status: Dividends are not tax-deductable.

Type of Financial Instrument: Debt
Order of claim: Interest must be paid before any dividends on stock are issued.
Legal obligations to holders: Interest must be paid regularly to avoid insolvency; principal must be repaid at stated maturity date.
Rights of holders: Bond holders have no voice in management as long as they receive interest payments.
Tax status: Interest as an expense of doing business is tax-deductable.


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