Debentures

Moving from owned funds to borrowed funds, the first and most important long-term borrowed source studied in this AP BIEAP Commerce chapter is the debenture.

A debenture is a certificate, issued under the company's seal, acknowledging a debt owed by the company to the person who holds it, and it carries a promise to pay a fixed rate of interest (called the coupon rate) at stated intervals, along with a promise to repay the principal amount on or after a specified date. A debenture holder is therefore a creditor of the company, not an owner, and gets no voting rights and no share in profits beyond the fixed interest promised.

Debentures come in several varieties. Secured (or mortgage) debentures are backed by a charge on some or all of the company's assets, giving the holder a claim on specific property if the company defaults, whereas unsecured (or naked) debentures carry no such charge and depend purely on the company's general creditworthiness. Redeemable debentures are repaid by the company after a fixed period, whereas irredeemable (or perpetual) debentures are repayable only on the company's winding up or on the happening of a specified contingency. Convertible debentures give the holder the option (fully or partly) to convert them into equity shares after a specified period, whereas non-convertible debentures remain debt throughout their life. Registered debentures are recorded in the company's register with the holder's name, and transferred by a regular instrument of transfer, whereas bearer debentures are transferable by mere delivery, like currency notes. …