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Direction: Choose the correct answer to the following questions from the given alternatives:
Debenture holders are:
- a)Owners of the company
- b)Creditors of the company
- c)Investors of the company
- d)Directors of the company
Correct answer is option 'B'. Can you explain this answer?
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Direction: Choose the correct answer to the following questions from t...
Debenture holders are creditors of the company
- Definition: Debenture holders are individuals or institutions that lend money to a company by purchasing debentures issued by the company.
- Creditors: Debenture holders are considered creditors of the company because they have provided funds to the company in exchange for the debentures.
- No ownership rights: Unlike shareholders, debenture holders do not have ownership rights in the company. They are merely lenders who are entitled to receive interest payments and the repayment of the principal amount.
- Prior claim: In case of liquidation or bankruptcy, debenture holders have a prior claim on the company's assets over shareholders. This means that they are entitled to be repaid before shareholders receive anything.
- Interest payments: The company is required to make regular interest payments to debenture holders as per the terms of the debenture agreement. Failure to make these payments can lead to default.
- Risk: Investing in debentures involves a certain level of risk as the company may default on its payments, leading to potential losses for the debenture holders.
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Direction: Choose the correct answer to the following questions from the given alternatives:Debenture holders are:a)Owners of the companyb)Creditors of the companyc)Investors of the companyd)Directors of the companyCorrect answer is option 'B'. Can you explain this answer?
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