Debt capital may be short- or long-term. Companies that provide motherboards to Dell are a source of short-term debt capital. They expect to be paid fairly quickly, but not at the moment of delivery. They provide Dell a very short-term form of debt capital. The long-term debt of a closely held corporation is likely to come from a commercial lender that takes a security interest in specified corporate property. This is much like an individual who obtains a mortgage from a bank secured by the home purchased with the borrowed funds. Large corporations have another alternative for obtaining long-term debt capital. Just as a publicly held corporation may sell its stock to the public, it also may sell the public units of debt, called bonds. A pension plan that holds Dell’s 30-year bonds is providing long-term debt capital to the company. Debt capital specifies an interest rate (or a formula for computing the rate) to be paid on the principal borrowed. Principal and interest are required to be paid in set amounts, usually over a defined term. 

Questions 

1. Do corporations have constitutional rights? Explain. 

2. Why is the business judgment rule needed? 

3. What characteristics of the corporate form make it particularly desirable for a business entity? Particularly undesirable? 

4. Do S corporations share those characteristics? 

5. a. What property rights are associated with common stock? 

b. Does preferred stock carry the same rights?