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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Conduit Theory

Definition:

If you try really, really hard, you conduit.

Sorry, we couldn't resist. 

Conduit theory relates to the tax treatment of an investment company. The basic idea is that if the company passes 90% or more of its net income, gains, and so on to its shareholders, then it won't be taxed on the income. Instead, the income (and losses, if any) will be passed to the investors and those shareholders will be taxed. It's the opposite of what happens at many corporations, where taxes are paid twice—once on the earnings and again after earnings have been passed on to shareholders.