DEBENTURES

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2018258034
• Section 2 (30) of the Companies Act, 2013 define
inclusively debenture as "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.
• Debenture is most important instrument and method of raising the
loan capital by the company.
• It is issued to the public as a contract of repayment of money
borrowed from them. These debentures are for a fixed period and a
fixed interest rate that can be payable yearly or half-yearly.
• It can also offered to the public at large, like equity shares. It is the
most common way for large companies to borrow money.
 ON THE BASIS OF SECURITY
Secured debentures
Those debentures which are
secured on particular assets
called secured debenture. These
debenture are also called known
as Mortgage debentures.
Unsecured debentures
Unsecured debentures are
those which are not secured
fully or partially by a charge on
asset. General solvency of the
company is the only security
for their holders. These are
also called naked debenture or
simple debenture.
 ON THE BASIS OF REDEMPTION
Redeemable debentures
Debentures which are repayable
after a stated period of time are
called redeemable debenture.
Debentures issued by companies
are generally of this type.
Irredeemable debentures
Debentures which are not
repayable during the lifetime of
the company are called
irredeemable debenture. The
company may repay the money
at the time of liquidation or on
the happening of a contingency
or after the expiry of a very long
period.
 ON THE BASIS OF RECORDS
Registered debentures
These are debentures which are
payable to the registered
holders. The names of the
holders of these debentures
appear both on the debenture
certificate and in the company’s
register of debenture holders.
Bearer debentures
Debentures which are payable to
the bearer are called bearer
debentures. The names of the
debenture holders are not
recorded in the register of
debenture holders. They are
treated as negotiable
instruments and as such they are
transferable by mere delivery.
 ON THE BASIS OF CONVERTIBILITY
Convertible debentures Non convertible debentures
Debentures which are
convertible in to shares or
securities at the option of the Debentures which are not
holders, after a certain period convertible into Shares or other
are called convertible securities of the company are
debentures. called nonconvertible
debentures.
Convertible debentures are two
types ;
1.Fully convertible debentures.
2.Partly convertible debentures.
 SHARES VS DEBENTURES
SHARES DEBENTURES
1. Proprietor of the company. 1. Creditor of the company.

2. Return in the form of 2. Return in the form of

dividend. interest.

3. Appropriation of profit. 3. Charge against profit

4. Always unsecured. 4. Mostly secured.

5. Right to attend meeting 5. No right to attend

and vote. meetings & vote.

6. Last claim amount of 6. First claim amount of

capital. capital.

7. No charge on the asset of 7. Charge is created on the

the company. asset of the company.

8. Shares can never be converted into 8.Debentures can be converted into shares.
debentures
 ISSUE OF DEBENTURES
Issue of Debenture takes various forms which are as,

1.Debentures issued for cash.

2.Debentures issued for consideration other than cash .
3. Debentures issued as collateral security.

Further, debentures may be issued

(i) at par,
(ii) at premium, and
(iii) at discount.
 CONDITIONS FOR ISSUING OF SECURED
DEBENTURES

• A company can issue secured debentures for a period not exceeding 10 years from
the date of its issue. If the company is engaged in setting up of infrastructure
projects it can issue debentures for a period exceeding 10 years but not exceeding
30 years.
• A debenture trustee shall be appointed before the issue of prospectus or letter of
offer for subscription of debentures and within a period of 60 days from the date of
allotment, a debenture trust deed is made to protect the rights and interest of
debenture holders.
• The security for the debentures by way of a charge or mortgage shall be created in
favor of the debenture trustee on-Any specific movable property of the company
(not being in the nature of pledge); or
• Any specific immovable property wherever situate, or any interest therein.