Contents :
- Meaning and Definition of Debenture.
- Procedure for Issue of Debentures.
- Types of Debentures.
- Characteristics of Debentures.
- Advantages and Disadvantages of Debenture.
What is Debenture ?
A company may final part of its capital needs by raising loans by issuing debentures. The short-term requirements are usually made by the company out of borrowing from commercial banks in the form of overdraft, cash credit and term loans. The long term finance required for supplementing the share capital is raised by issuing debentures, if the earnings of the company are constant and sufficient to meet interest liability and to make provision for repayment of the principal amount on maturity. Debenture capital is therefore, known as debt capital and is shown on the liability side of Balance Sheet.
Meaning of Debentures
The word debenture is derived from the Latin word ‘Lebere’ meaning ‘to owe’. In its simplest sense it means a document which either creates or acknowledges a debt. A company can raise finances by issuing debentures. A debenture may be defined as the acknowledgement of debt by a company. Debentures constitute the borrowed capital of the company and they are known as creditorship securities because debenture holders are regarded as the creditors of the company.
Definitions of Debenture
General Definition :
“A debenture is a document issued by the company as an evidence of debt. It is the acknowledgement of the company’s indebtedness to its holders.”
Palmer :
“Any instrument under seal of the company, evidencing a deed, the essence of it being admission of indebtedness. “
Evelyn Thomas :
“It is a document under the company’s seal which provide for the payment of a principal sum and interest thereon at regular intervals which is usually secured by a fixed or floating charge on the company’s. property or undertaking and which acknowledges a loan to the company.”
