Introduction

In this article you will know about " Meaning, Features And Types Of Debentures " in easy language so that you will be able to understand it. Like shares, Debenture are also issued by the company when the company needs funds. Debenture is a document given by a company as evidence of debt to the debenture holder and borrows funds in exchange. All the rules related to the debt/loan are written in the document such as interest rate, period of fund, repayment of principal amount etc. 

Meaning Of Debenture

Debenture is a written instrument/document which is issued by the company to raise debt. The terms of repayment of principal and payment of interest at a specific rate are stated in the document. 
According to section 2(30) of the Companies Act, 2013 " Debenture includes debenture stock, bonds and any other instrument of the company evidencing a debt, whether constituting a charge on the assets of the company or not. " 
A Debenture called Debenture certificate is an acknowledgement of debt by the company. It is an agreement between the company and the debentureholders for repayment of principal amount on the specific date and payment of interest at the specified rate until the principal amount is repaid. The person to whom debentures are issued are called Debentureholders. 




Characteristics Or Features Of Debenture

  • Debenture is a written document or certificate acknowledging debt by the company. 
  • Mode and period of repayment of principal and interest is fixed. 
  • Rate of interest on the debenture is specified. 
  • It is borrowings of the company. 
  • Interest on debentures is a charge against profit. 
  • It is normally secured by way of charge on the assets of the company. 

Types Of Debentures

1. On the basis of Redemption

(a) Redeemable Debentures :- 

Redeemable Debentures are those debentures that are repayable by the company at the end of a specified period or by instalments during the existence of the company. 

(b) Irredeemable Debentures :-

Irredeemable Debentures are those debentures that are not repayable during the lifetime of the company and hence are repaid only when the company is liquidated. 

2. On the basis of Security

(a) Secured Debentures :- 

Secured Debentures are those debentures which are secured by either a fixed charge or a floating charge on the assets of the company. A charge on the assets of the company is registered with the Registrar of Companies. 

(b) Unsecured Debentures :-

Unsecured Debentures are those debentures which are not secured by a charge on assets of the company. 

3. On the basis of Registration

(a) Registered Debentures :-

Registered Debentures are the debentures that are registered in the company's records in the name of the holder. Principal and interest of such debentures is payable to the registered debentureholders. 

(b) Bearer Debentures :-

Bearer Debentures are the debentures that are not registered in the records of the company in the name of holder. These debentures are transferable by mere delivery. Interest is paid to the person who produces coupons attached to the debenture. 

4. On the basis of Convertibility

(a) Convertible Debentures :- 

Convertible Debentures are the debentures that are convertible into shares. If a part of the debenture amount is convertible into Equity Shares, they are known as Partly Convertible Debentures. If full amount of debentures is convertible into Equity Shares, they are known as Fully Convertible Debentures. 

(b) Non- convertible Debentures :-

Non-convertible Debentures are the debentures that are not convertible into shares.