Introduction - Issue of Debentures | Crash Course of Accountancy - Class 12 - Commerce PDF Download

Meaning of Debenture:
A debenture issued by a Company is usually in the form of a Certificate, given under the seal of the Company. Thus a debenture is a written acknowledgement of a debt taken by the Company as these are issued under the seal of the Company.
A Debenture Certificate contains the terms of the repayment of the principal sum at a specified date and the terms of payment of interest at a fixed per cent.
Characteristics or features of debentures:
1. A debenture is issued by a Company in the form of a Certificate, which is a written acknowledgement of debt taken by the Company.
2. A debenture is issued under the seal of the company.
3. It contains a contract for the repayment of principal sum at a specified date.

4. As per Companies Act, 2013 no Company is allowed to issue debentures having a maturity date of more than 10 years from the date of issue.
5. Usually the debentures are issued with a specified rate of interest, which is called ‘Coupon Rate’.
6. A debenture is generally secured by a charge on the assets of the Company.
7. Funds raised by the issue of debentures are of long term nature and usually the debentures are repaid after a long period, such as seven years, ten years or twelve years. As such, the loan raised by the issue of debentures is also called as ‘Loan Capital’.

Bond:
It is very much similar to that of debenture. Traditionally, bonds had been issued by the government, but now a days these are also being issued by various semi-government and non-government organisations.
Distinction between debenture and bond:
- Debentures are issued with a fixed rate of interest.
- Bonds can be issued without predetermined rate of interest.
Deep discount bonds or zero coupon bonds:
A deep discount bond or zero coupon bond is one which is issued without prefixed rate of interest and its issue price is heavily discounted.
The difference between issue price and the redemption price represents the total interest to be spread over the duration of the bond.

Types or Kinds of Debentures:
1. Secured or Mortgage Debentures: These debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the Company in general, called a floating charge.
2. Unsecured or Naked Debentures: These debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company.
3. Registered Debentures: Names and addresses of the holders of such debentures are recorded in a register of the Company called, “Register of Debentureholders”. Such debentures are not freely transferable.
4. Bearer Debentures: Names and addresses of the holders of such debentures are not recorded in the Company and these debentures are transferable by mere delivery.
5. Redeemable Debentures: Redeemable debentures are those debentures which will be repaid by the Company either in lump sum at the end of a specified period or by instalments during the lifetime of the Company.

6. Irredeemable or Perpetual Debentures: Irredeemable debentures are those debentures which are not repayable by the Company during its life time. These debentures are repayable only at the time of liquidation of the Company.
7. Convertible Debentures: Convertible debentures are those debentures which are convertible into equity shares.

Distinction Between a Share and a Debenture: