Income bonds are highly favored by corporations, because they provide the benefits of tax-deductible interest payments, without the contractual obligations of most debt instruments.

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Income bonds specify that interest is to be paid only to the extent that it is earned as current income. There is no legally binding requirement to pay interest on a regular basis, and failure to make interest payments cannot trigger bankruptcy proceedings. These issues appear to offer the corporation the unusual advantage of paying interest as a tax-deductible expense (as opposed to dividends) combined with freedom from the binding contractual obligation of most debt issues.

Income Bonds Are Highly Favored by Corporations, Because They Provide