Issue of Debentures

• Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains terms and conditions of contract as regard the payment of interest and redemption of the principal.

Definitions

• Acc to section 2 (12) of the companies Act 1956 , “Debenture includes debenture stock, bonds and any other securities of the company whether constituting a charge on the assets of the company or not.”

Features

• 1. It acknowledges the debt of the company.• 2. Carries interest at fixed rate, it is fixed

before the issue of debentures.• 3.It is secured by a charge on the assets of the

company.• 4. Debenture holders do not enjoy any voting

right.

• 5. No legal restrictions on purchase of of its own debentures by a company.

• 6. No legal restrictions on issue of debentures by a company.

• 7.Debenture Trust Deed is commonly executed.

• 8. Debentures are long term debt.

Difference between a Debenture and Share

• 1. Nature• 2. Returns• 3. Repayment• 4. Charge• 5. Voting Rights• 6. Convertibility• 7. Restriction on purchase by the company

Types of Debentures

1. Security or Naked Unsecured or Naked Secured 2.Tenure point of view Redeemable Irredeemable3. Mode point of view Convertible Non Convertible4.Registration point of view Registered Bearer