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Simple English definitions for legal terms
Trust Indenture Act
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A quick definition of Trust Indenture Act:
The Trust Indenture Act is a law that helps keep people who invest in certain types of bonds safe. It makes sure that the people who are in charge of the bonds are independent and that the rules for the bonds are fair. The law was made in 1939 and is still in place today.
A more thorough explanation:
The Trust Indenture Act is a federal law that was passed in 1939 to protect investors who purchase certain types of bonds. The law requires that:
- The Securities and Exchange Commission (SEC) approves the trust indenture
- The indenture includes certain protective clauses and excludes certain exculpatory clauses
- The trustees are independent of the issuing company
For example, if a company wants to issue bonds to raise money, they must create a trust indenture that outlines the terms of the bond. The Trust Indenture Act requires that the SEC approves this indenture to ensure that it is fair and protects the investors. The indenture must also include certain clauses that protect the investors, such as a clause that requires the company to make timely interest payments. Additionally, the trustees who oversee the bond must be independent of the company to prevent any conflicts of interest.