Meaning: - When a company wants to borrow long term finance then issuing
debentures is the most convenient method. Because, debentures can be repaid
after a long period such as 10 years, 20 years, etc. the term debenture
originates from a Latin word ‘debare’ meaning ‘to owe’. In simple term a
debenture is an instrument of credit issued by a company to acknowledge its
debt/loan to debenture holder upto a certain sum of money under certain terms
and conditions. It is in the form of document known as Debenture Certificate.
Definition: - According to
Companies Act, sec. 2(12) “Debenture includes stock, bonds and any other
securities of a company whether constituting a charge on the company’s assets
or not”.
A)
On the basis of
security offered
1.
Secured Debentures; -the secured debentures
are also called as mortgage debentures. They are secured by some charge on the
assets or property of the company. The charge may be either fixed charge or
floating charge. In case of fixed charge, specific assets are mortgaged as a
security for the debentures under floating charges; the debenture holders have
a claim over all assets of the company.
2.
Unsecured
Debentures: - Even though majority debentures are secured debentures, some
debentures may also be unsecured debentures. They do not have any charge on any
assets of the company..
B). On the basis of Basis of
redemption
3.
Redeemable Debentures: - Sometimes the debentures are issued for a specific period of
time. After the expiry of the specific period the company can repay money to
debenture holders. Such debentures are known as Redeemable Debentures.
4.
Irredeemable Debentures: - they are also called as perpetual debentures. The amount of
irredeemable debentures. It is retained as a part of the permanent capital of the company. The
amount is not paid during the life time of the company. They are paid back as
per the convenience of the company.
C. On
the basis of transferability
5.
Registered
Debentures: - these
debentures are recorded in the register of debenture holders. The details
recorded are in respect of the name and address of the debenture holder, the
number of debentures held and other particulars.
6.
Bearer
Debentures: - the bearer
debentures are like bearer instruments. They can be transferred by mere
delivery of the document or debenture certificate. The interest on such
debentures is paid by means of attached coupons. The coupons can be Encashed by
the holder as and when each falls. Permission from central Government is
required before the issue of Bearer Debentures.
D). On the basis of Conversion
7.
Convertible
Debentures; - Convertible
Debentures are those which can be converted either partly or wholly into equity
shares after the completion of a definite period. The rate of interest and date
of conversion is decided at the time of issue. The interest is paid up to the
date of conversion. On conversion the debenture holders are eligible for
dividends and other rights and privileges of shareholders.
8.
Non-convertible debentures; -These debentures cannot be converted
into equity shares; they are usually redeemed after a certain period of time.
The non-convertible debentures may be secured or unsecured.
