This section is from the book "Popular Law Library Vol8 Partnership, Private Corporations, Public Corporations", by Albert H. Putney. Also available from Amazon: Popular Law-Dictionary.
Corporate securities are divided into stocks and bonds. Stockholders are members of the corporation and part owners of its assets; bondholders, on the other hand, are creditors of the corporation. A bond is merely a promissory note issued by the corporation, payment of which is generally secured by a mortgage or trust deed on the property of the corporation. In the case of railroads and other large corporations, there are often two or more series of bonds, one set having precedence over the other. Interest on bonds must be paid in full before any dividends can be paid on the stock. The amount of interest on the bonds is fixed and cannot increase with the earnings of the company. Bondholders have no vote or voice in the management of the corporation.