Definition of Debenture, Debentures: The company obtains long-term loans, in which the company gives investors
Pays interest at a certain percentage per annum whether the company makes profit or not.
When the company needs capital, then by issuing company debentures Definition of Debenture.
Receives capital or we can say the rest that the lender gives a loan to the company and the company provides a receipt for that loan in the form of debentures, the lender does not have management or voting rights in the company.
benefit from debentures
- debenture is secure loan
- To debenture holders before equity shareholder and predecessor shareholder
- Payment is made in the event. Of company winding up.
- Be it profit or loss the pressure is give to the lenders.
- The debenture holders do not interfere with the management.
- The pressure give on the debentures is consider by the company as an expense.
The loan company does not have fixed assets but does not interpret the debentures.
Debentures reduce the borrowing capacity of the company.
Types of Debentures
redeemable and non-refundable debentures
debentures and in case of liquidation the following debentures are non-renewable debentures.
Convertible or unconverted debentures:- Debentures which are give the right to convert into equity shares but
convertible debentures and debentures having the right to convert equity shares
Not given is an irrevocable debenture.
Secured or unsecured debentures:- the debentures issued by the company as a charge of its own assets
Unsecured debentures which are without charge on the asset, only on the condition of refund
Registered and bearer debentures:- when debenture holders are register at the time of debenture placement
A debenture is a registered debenture that is transfer by mere debenture delivery.
It can be said that it is a bearer debenture.
Debentures are of the following types
I. Types of Debentures in terms of payment
- Debentures for payment:- Debentures due or redeemable means such debentures. Which are paid on a predetermine date. Or after the expiry of a specified period.
- Bad or non-refundable debentures:- Such debentures. Which are paid only on. The dissolution of the company. Are call bad or non-refundable debentures. They are call bad because. They are not paid during. The life of the company. But in case of non-payment of interest. Such debentures can be paid. During the life of the company.
II. Types of Debentures in terms of transfer
- Bearer Debentures:- Such debentures, which are transfer only by delivery, are call bearer debentures. Such debentures are paid for by their bearer. No statutory method of any kind is follow for this debenture.
- Register Debentures (S-14):- Such debentures, which are transfer according to the rules of the company and which are require to be account for in the register of the company, are call register or registered debentures.
III. Types of Debentures with a View to Security
- Secured or mortgaged debentures:- When the company issues debentures by keeping its property as mortgage. Then such debentures are call secure or mortgage debentures. The property so mortgage. Cannot be sold until. Such debentures. Have been paid off.
- Ordinary or unsecured debentures:- Such debentures, in the form of payment of which no property is secure or mortgage. Are call ordinary or unsecured debentures. At the time of dissolution of the company, its holders are treat as ordinary transactions. And the company is liable for the debts mention in them.
IV. Types of Debentures with a view to convert
- Convertible Debentures:- Convertible debentures mean such debentures which can be convert into shares and new debentures within a specified period. At present, the practice of such debentures is being promote, as they provide an important source of fixed capital to the company.
Debentures – Wikipedia
A debenture or debenture is a type of certificate which gives information that the company will pay a certain amount to the investor. In this payment, interest is receive on the principal amount and capital on maturity. There are mainly three types of debentures.
Fully Convertible Debentures
In this, the investor gets the interest at the initial level. In this case the principal amount is not refund to the investor, except where the investor is not a shareholder in the company.
Irrevocable Debentures (Convertible Debentures)
These debentures cannot be convert into equity or shares. On maturity, the principal amount is. Paid to the investor.
Partially Convertible Debentures
EAs are debentures which after maturity offer some equity and shares along with the principal amount.
There are two options non-convertible debentures. Definition of Debenture, First cumulative interest and second daily interest option. In the cumulative option. The interest rate and principal. Amount is paid after maturity. Before this no payment is receive. Whereas, in the option of daily interest, the investor gets interest from time to time. It can be quarterly as well as yearly. If you are looking for a fund that will meet your daily financial needs, then the annual option is better. Holding it till maturity, its income comes in the form of long term capital gain. If you are in the 30% tax bracket, then the cumulative option would be better for you.
Debenture History View Meaning and Full Details
In corporate finance, a debenture is a medium to long-term debt instrument used by large companies to borrow money at a fixed rate of interest. The legal term “debenture” originally refer to a document that either creates a loan or acknowledges it, but in some countries the term is now use interchangeably with a bond, debt stock or note. Definition of Debenture, A debenture is thus like a certificate of debt or debt bond which certifies the liability of the company to pay a specified amount along with interest. Although the money raised by debentures becomes a part of the company’s capital structure, it does not become share capital. Senior debentures are. Paid before subordinate debentures. And there are different rates of risk and payoff for these categories.
Debentures are freely transferable by the debenture holder. Debenture holders have no right to vote in the general meetings of the company of shareholders, but they can have separate meetings or votes such as on changes in the rights attached to the debentures. The interest paid to them is a charge against the profit in the company’s financial statements.
Debenture History View Meaning
The term “debenture” is more descriptive than definite. A precise and all-encompassing definition for a debenture has proved elusive. The English commercial judge, Lord Lindley in one case notably remarked: “Now, what the exact meaning of ‘debenture’ is I do not know. I cannot find a precise definition of it anywhere. We know that there are different types of instruments. which are commonly call debentures.
Debentures gave rise to the idea of ”clipping of coupons” of the wealthy, meaning that a bondholder would present his “coupon” to the bank and receive payment each quarter (or in any period specified in the agreement).
There are also other features that reduce risk, such as a “sinking fund,” which means the debtor must pay back some of the value of the bond after a certain period of time.
It reduces risk for creditors in the form of a hedge against inflation, bankruptcy, or other risk factors. A sinking fund makes the bond less risky, and therefore gives it a smaller “coupon” (or interest payment).
There are also options for “convertibility,” which means a creditor can convert its bond into equity in the company if it does well. Companies also reserve the right to call their bonds, which means they can call it before the maturity date. Often there is a clause in the contract that allows this. For example, if a bond issuer wants to rebook a 30-year bond in the 25th year, it must pay a premium. If the bond is call. It means that less interest is paid.
Debenture History Full Details
Definition of Debenture, Failure to pay off a bond effectively means bankruptcy. Bondholders who have not received their interest can throw an offending company into bankruptcy, or seize its assets if stipulated in the contract.
In the United States, debenture refers specifically to an unsecured corporate bond, i.e. a bond that does not have a fixed line of income or a piece of asset or equipment to guarantee repayment of principal upon maturity of the bond. it happens . Where security is provided for debt stocks or bonds in the US, they are call ‘mortgage bonds’.
In Canada, a debenture refers to a secured debt instrument where the security usually exceeds the debtor’s credit. But the security is not pledge for specific assets. Like other secured debts, debentures give priority status to the debtor over unsecured creditors in bankruptcy. However, debt instruments where the security is pledge against specific assets (such as bonds) enjoy a higher priority status in bankruptcy than debentures.
In Asia, if the repayment is secure by a fee on the land, the loan document is call a mortgage; Where the repayment is secure by charges against other assets of the company, the document is call a debenture; And where no security is involve, the document is call a note or an ‘unsecure deposit note’.