These must not be confused with municipal "water bonds," which are the obligation of the town or city issuing them. "Water company bonds" are the obligation of an incorporated company and secured by a mortgage on its property. Whether these are desirable or not depends upon such things as management, location, permanency of supply, amount of business, etc. The franchise should mature at a later date than the bonds; the net earnings should be, roughly, twice the interest charges; there should be a sinking fund large enough to retire, say, at the rate of one-half of the issue in forty years - this is a very movable quantity, though. And, lastly, a satisfactory contract with the municipality during the life of the bond issue itself, for supplying water for hydrant and other purposes, should exist. This contract should not be at rates so high as to be likely to encourage dissatisfaction and a desire to install other and competing plants, or to buy out the one already doing the business.

Where charters have included conditions which stipulate that the water supply shall be pure, trouble has sometimes resulted. This has occurred in cases where the municipalities have desired to purchase the water company property, a fight being waged upon the agreement for the supplying of pure water not being complied with.

Greene says, in his "Corporation Finance:" "Water and gas are modern necessaries of life, and the supplying of these necessaries, when done by private companies under a conservative plan, is a proper and safe business for the investment of money."