INTRODUCTION:

A company is a separate legal entity that needs funds or finance to run its business that is to meet the short-term and long-term requirements of the company. It can raise this fund either through equity or debt or both. Equity means raising capital by issue of shares and debt means borrowing money by the issue of debentures.

 A debenture is an instrument that acknowledges a debt by the company to some person or persons. It is a written acknowledgment issued under the common seal of the company if any. Generally, the issue of debentures creates a charge on the assets of the company. A loan raised by the company is divided into small parts and each part is called a debenture and when debentures are issued in mass or a lot it is called debenture stock.

FEATURES OF DEBENTURE:

• Debentures are usually in form of a certificate;
• A certificate is an acknowledgment by the company of its indebtedness to the debenture holders;
• It provides for payment of the specified sum at a specified date;
• Provides for payment of interest until principal amount is paid back;
• Interest is paid in fixed intervals like six-monthly or annually;
• Can be issued at discount as well;
• Debenture holders are creditors of the company and have no voting right.

KINDS OF DEBENTURES:

There are various types of debentures divided into different categories:

• Based on security: Debentures can be classified as secured and unsecured debentures. Secured debentures are those debentures wherein security is provided by the company in form of a mortgage or charge on the assets of the company. Moreover, the value of the security should be more than or equal to the sum of the amount of denture and interest. They are generally issued for a period of 10 years, however, in the case of an infrastructure project they can be issued for more than 10 years but up to 30 years only. On the other hand, unsecured debentures are those wherein no security is provided by the company. They do not carry any charge on the assets of the company.
• Based on redemption: Debentures can be classified as redeemable and perpetual debentures. Redeemable debentures are those wherein the redemption period is fixed that is, they are payable within or at end of the specified period. Perpetual debentures are those where the redemption period is indefinite and are repayable only on the happening of some specified events like winding up of the company.
• Based on entry into the register of debenture holders: Debentures can be classified as registered and bearer debentures. Registered debentures are those where the name of the debenture holder is entered on the register. They are payable to a person whose name appears on the register as the registered holder. Bearer debentures are those where the holder is not registered on the register. Here, interest is payable to the bearer who produces the interest coupons attached to debentures.
• Based on conversion into equity shares: Debentures can be classified as non-convertible and convertible debentures. Non-convertible debentures are those where there is 100% redemption and 0%conversion and are therefore redeemed on expiry of the specified period. Convertible debentures are further classified as first, partly convertible wherein the convertible portion is converted into shares according to terms of issue and the non-convertible portion is redeemed at the expiry of the specified period and second, fully convertible debentures where there is 100% conversion and 0% redemption, however, such debentures can be issued only with prior approval of shareholders employing a special resolution passed at the general meeting.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.