A debenture is a certificate or document issued by a company to acknowledge its debt of specified amount to the holder. It specifies the amount repayable after a fixed period and the rate of interest payable at fixed intervals. Debenture holders are creditors of the business organization. The debenture is an acknowledgement of debt raised by the business organization. It is issued under the seal of the company. It carries a fixed rate of interest and it is repayable after the specified time period.
Types of debentures:
There are several types of debentures and they are as follows:
Registered and Bearer Debentures: When the names of debenture holders are recorded in a register of company, debentures are called registered. These debentures can be transferred by mere delivery with the company’s approval. On the other hand, bearer debentures are transferable by mere delivery as the company maintains no register of such debentures. Interest on such debentures is payable on the basis of attached coupons.
Convertible Debentures: are the convertible bonds. Bonds which could be into equity shares of the issuing company after a predetermined period of time are called as convertible debentures.
Non Convertible Debentures: are the nonconvertible bonds which cannot be converted into equity shares of the liable of the business organization.
Naked and Mortgage Debentures: Naked is also called as simple or unsecured debentures which carry no charge on the company’s assets. Secured or Mortgage debentures which does not carry charge on the assets of the business organization.
Advantages of Debentures: