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Legal Definitions - bond
Definition of bond
A bond is a formal agreement that creates a financial or legal obligation between parties. It can function as a debt instrument, where one party promises to pay another a specified amount of money, often with interest, over a defined period. Alternatively, in a legal context, a bond can be a sum of money or a promise used to guarantee that an individual or entity will fulfill a particular legal duty or obligation.
Example 1 (Financial Context): Imagine a large technology company, "InnovateTech Inc.," wants to invest in developing a groundbreaking new product. Instead of taking out a traditional bank loan or issuing more stock, InnovateTech decides to issue corporate bonds. Investors purchase these bonds, essentially lending money to InnovateTech. In return, InnovateTech promises to pay these investors regular interest payments (known as coupon payments) for a set number of years, and then return the original amount of money (the principal) when the bond matures. This allows InnovateTech to fund its research and development, while investors receive a predictable return on their investment.
This example illustrates a bond as a debt instrument. InnovateTech Inc. has a clear financial obligation to its bondholders to pay both interest and the principal amount, demonstrating the bond's role in creating a financial commitment.
Example 2 (Criminal Law Context): Sarah is arrested for a minor traffic violation and is taken into custody. During her arraignment, the judge sets her bail at $1,000. To be released from jail while she awaits her court date, Sarah's friend pays the $1,000 to the court as a bail bond. This money acts as a guarantee that Sarah will appear for all her scheduled court proceedings. If Sarah attends all her court dates as required, the $1,000 will be returned to her friend. However, if Sarah fails to appear, the court will keep the money, and a warrant for her arrest will be issued.
Here, the bond serves as a legal guarantee. The $1,000 payment creates an obligation for Sarah to fulfill her legal duty to appear in court. If she fails to meet this obligation, the bond money is forfeited.
Simple Definition
A bond generally refers to a legal obligation to pay a specified amount of money. In finance, it functions as a loan where an entity borrows funds from investors, promising to repay the principal with interest by a set date. In criminal law, a bond is money paid to secure the performance of a legal duty, such as a defendant appearing in court, which is returned if the duty is fulfilled.
