A legal claim against a firm, usually entitling the owner of the bond to receive a fixed annual coupon payment, plus a lump-sum payment at the bond’s maturity date. Bonds are issued in return for funds lent to the firm.
Bonds are not claims on the future profits of the firm. Legally, bondholders must be paid whether the firm prospers or not. To help ensure this, bondholders generally receive their coupon payments each year, along with any principal that is due, before any shareholders can receive dividend payments.