Meaning of Debentures
Definition of Debentures
The word ‘debenture’ has been derived from a Latin word ‘debre” which means to borrow.
Debenture is an instrument issued by the company acknowledging its debts to the holder under its seal. Debentures carry interest at certain per cent. As it is a loan taken by the company, it is repaid after certain specific period or at the option of the company as per the terms of their issues. There are no legal restrictions on the price for which debentures are issued. Debentures may be issued at par, at discount or at premium like shares.
Meaning of Debentures
According to section 2 (12) of Companies Act, 1956, debentures includes “debentures stock, bonds and any other securities of a company whether constituting a charge on assets of the company of not”. In this way, important features of debentures may be summarized as under:
- Debentures are certificates acknowledging debt of a specified amount to the person named in it.
- Periodic payment of interest at specified rate.
- Mentioning the period after which it will be redeemed.
- Mentioning details of security, if any.
Status of Debenture- holders
Debenture- holders are the creditor of the company. They are paid interest on their debentures regularly at fixed rate. It is usual practice to prefix the rate before debentures, - i.e. - 12 per cent debentures. Debenture- holders have priority as to their interest and refund of their loan in case of dissolution of the company over shareholders. Debenture- holders are not concerned with the management of the company. They are not involved in the administration and control of the company.
A debenture is a loan certificate issued by the company to its holders. The company instead of borrowing entire from an individual divides the funds into certain small denominations or parts. These parts are known as debentures. Suppose the company wants to borrow Rs. 10, 00,000 as loan by issuing debentures, it may issue debentures of Rs. 100 each and thus 10,000 debentures will be issued. In case of Rs 1,000 debentures will be required for the loan of Rs. 10, 00,000.