Debenture : Definition, Features, Types and difference with shareholding

Q. Define a debenture. What are usual features of debentures? [2016 - 4 marks]

Q. What is the difference between shareholder and debenture holders? Explain. [2018 - 10 marks]

Definition of Debenture

As per section 2(30) of the Companies Act 2013, debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

In simple terms debenture can be defined as a debt instrument issued against a fixed rate of interest by a company to raise fund for their long term capital requirements. It is a debt fund.

Features of Debenture

1. There is a fixed rate of interest

2. These are long term instruments

3. May be secured or unsecured

4. Interest on debentures are payable even if there is a loss

Types of Debentures

1. Ordinary debentures

2. Mortgage debentures

3. Partially Convertible debentures

4. Fully convertible debentures

5. Non-convertible debentures

6. Redeemable debentures

7. Irredeemable debentures

8. Registered debentures

9. Unregistered debentures

Difference between Share Holders and Debenture Holders

1. Shares are the company owned capital. Debentures are the borrowed capital of the company.

2. Shareholders are the owner of the company. Debenture holders are the creditors to the company.

3. Shareholders get dividend if there is a profit. Debenture holders get fixed rate of interest whether there is profit or not.

4. Shareholders are liable for the loss of the company. Debenture holders are not liable for the loss of the company.

5. Shareholders possess voting rights. Debenture holders do not have such right.