They are basically documents that evidence the existence of a debt in a companys name. Following are the various types of debentures visavis their basis of classification. However, regardless of its type, debenture forms must determine who the parties are and the signature of authorized personnel such as the jury. Convertible debentures usually have a lower interest rate compared to non. A debenture may, be defined as document issued by the company as an evidence of debt. Secured and unsecured, registered and bearer, convertible and nonconvertible, first and second are four types of debentures. Share, debentures or other interest of any member in a company. Definition,type and issue of debentures caclubindia. Debentures are backed only by the general creditworthiness and reputation of the issuer. These securities are repayable after a fixedperiod. A debenture is one of the most typical forms of long term loans that a company can take.
The interest on debenture is a charge on the profit and loss account of the company. These are mediumlong term debt or loans taken by a company to raise capital. The legal term debenture originally referred to a document that creates a debt or recognizes, but in some countries the term is now used interchangeably with bonds, loans or notes. Common people cannot buy debenture as they are of high denominations saturday, may 16, 2015 amity universtiy rajasthan 21. What are the different types of debt instruments available.
If the charge is floating the company is free to deal with the assets charged but as and when the. In this video youll learn exactly about what is debentures and its types what is debenture. Types of debentures debentures on the basis of registration 1. A company in india can issue secured or unsecured debentures. Hence, companies are free to issue many other types of debentures. Debentures meaning, issue, features, types, advantages. Types of debentures basis redemption, convertibility, security, etc. Debentures are also known as a bond which serves as an iou between issuers and purchaser. Like ordinary shares, debenture holders will not be regarded as owners of the company and have no voting rights.
Debentures are debt instrument used by companies to issue loan. Icsi house, 22, institutional area, lodi road, new delhi 110 003. The legal term debenture originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. Whenever a bond is unsecured, it can be referred to as a debenture. Apart from this, there are no other specific restrictions. Types of debentures basis redemption, convertibility. Kinds of debenture debentures are generally classified into different categories on the basis of. Everything you need to know about the types of debentures. These debentures are registered with the company and the amount is payable only to those debentures holders whose names are registered with the company.
A debenture is a medium to longterm debt format that is used by large companies to borrow money. Debentures may be secured or unsecured and companies frequently issue both kinds of debentures. These debentures are not registered with the company, these are transferable merely by delivery and the debenture holder will get the interest. Also given links to download companies act 20 book pdf in this web portal. Just give us a missed call on 022 6181 6111 to explore our unique free advisory service. They are a certificate of debt, with the date of redemption and quantity of reimbursement mentioned on that. Understand the meaning and basic purpose for raising debentures by the company differentiate between shares and debentures of a company understand various types of debentures pass entries for issue of debentures payable in installments.
A debenture is a type of debt instrument that is not secured by physical assets or collateral. A debenture is essentially a debt instrument that ackno. Debenture conversion agreement download pdf agreements. In case of debentures, the rate of debentures are fixed and known to investors. Ultimately, a debenture is not like a standard product configured strictly. A nonconvertible debenture is a debenture where there is no option for its conversion into equity shares. Unsecured means that the debentures are only backed by the companys creditworthiness and reputation and not by. If the amount of debentures is to be repaid after a specific. This certificate is issued beneath the corporate seal. The different types of debentures have been explained in brief as follows. Debentures meaning, issue, features, types, advantages, disadvantages the term debenture is derived from the latin word debere which means to owe a debt. Loan is issued to corporates based on their reputation at fixed rate of interest. Let us make indepth study of the meaning, importance and types of reserves. The definition of a debenture is a longterm bond issued by a company, or an unsecured loan that a company issues without a pledge of assets.
Redeemable debentures carry a specific date of redemption on the certificate. The terms debentures and bonds ar e now being used inter changeably. In the case of corporate finance, a debt is a medium to longterm debt instrument used by large companies to borrow money at a fixed rate. The following are the types of debentures issued by a company. Registered debentures these are the debentures that are registered with the company. In this video, you can find a detailed explanation of the debentures and its salient features. The different classes of share capital and the rights attached to these classes are different. A mortgage bond is one that is secured by a pledge on a specific asset, usually fixed asset, such as plant and equipments. A debenture is thus like a certificate of loan or a. A company may issue different kinds of debentures which can be.
The debenture classification is based on their tenure, redemption, mode of redemption, convertibility, security, transferability, type of interest rate, coupon rate, etc. Such debentures are treated as nonnegotiable instruments and interest on such debentures are. The debenture is a written tool accepting a debt under the general authentication of the enterprise. Following are some of the advantages of debentures. The companies act 20 pdf book is free and available here to download. Debenture definition in the cambridge english dictionary. Debentures are financial instruments through which companies can raise debt. The government securities gsecs market is the oldest and the largest element of the indian debt market in terms of market capitalization, trading volumes and outstanding securities.
Bearer debentures are those debentures which can be transferred by mere delivery. These are those debentures which are registered in the register of the company. Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion. Debentures being secure investments, returns are less. In corporate finance, a debenture is a medium to longterm debt instrument used by large companies to borrow money, at a fixed rate of interest. If the company fails to repay the loan along with interest, the lender is free.
Types of debentures are secured, unsecured, redeemable. The amount of such debentures is payable only to those debenture holders whose name appears in the register of the company. A debenture is one of the capital market instruments which is used to raise medium or long term funds from public. Bond issued by government do not have any risk of default. Debenture is a security issued or allotted to the investor under the seat of the company who become creditors of the compan. Online invoicing and accounting software makes it easy to stay on top of your companys cash flow. The holders of partly convertible debentures are given an option to convert part of their debentures. Broadly, there are two kinds of share capital of a company limited by shares. Gk, general studies, optional notes for upsc, ias, banking, civil services. In a sense, all debentures are bonds, but not all bonds are debentures. A person holding debenture or debentures is called a debenture holde r.
Debenture conversion agreement is typically an unsecured bond or loan issued by a company that can be converted into stock after a particular period. In this article we have given all the reference books and book authors and topics and contents about the book the companies act 20. Thus the debenture holders remain debenture holders till maturity. Debentures pay the holders a fixed rate of interest this interest rate is usually lowe. Collateral trust debenture and equipment trust debenture. The company is legally bound to repay the principal amount to the debenture holders on that date. Discuss different kinds of debentures within the environment and management of financial services forums, part of the upload download banking and insurance projects and notes category. The debentures which are payable to the registered debenture holders are called registered debentures. Debentures 2 learning objectives after studying this unit, you will be able to. Debentures are instruments of debt, which suggests that debenture holders become creditors of the corporation. Companies issue debentures extensively because debt capital is cheaper to raise. We can classify types of debentures in the following five categories. Concept of debentures in india legal service india. Debentures are creditor ship securities representing longterm indebtedness of a company.
Traditionally, the government issued bonds, but these days, bonds are also being issued by semigovernment and nongovernmental organisations. Debentures definition, types of debentures, examples. The contract is signed between the debenture holder and the company issuing debentures. Debt instruments are of different types like bonds, debentures, commercial papers, certificates of deposit, government securities g secs etc. A debenture may be defined as an instrument executed by a company under its common seal acknowledging indebtedness to repay the sum at a specified. Lets take a look at the various types of debentures companies can issue. These debentures are not transferable by mere delivery. Specimen presentation of debenture certificates for. Types of debentures on the basis of record point of view a. Shares and typeskinds of shares in company law in india. There are various types of debentures like redeemable, irredeemable, perpetual, convertible, nonconvertible, fully, partly, secured, mortgage. It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities sometimes referred to as perpetual debentures. Reserve means an appropriation of profits or other surpluses to strengthen the liquid resources of the business enterprise and not for meeting any liability, contingency or any commitment of the business.