Subsection 30 of Section 2 of the Companies Act, 2013 states that debentures include instruments that provide evidence for that like debenture stocks, bonds, or any other instrument. The section talks about constituting a charge on the assets of the company. In a layman’s term debenture is an instrument that acknowledges that there is that by a company to some person.

Section 71 of the act states that a company can issue a debenture with the option to convert it into shares at the time of redemption, the conversion can be done wholly or partly.

The turn debenture is derived from a Latin word that means to loan or borrow and they are issued under the common seal of a company and are very similar to a loan certificate.

The debenture holders become creditors of a company as debenture is an instrument of debt. A debenture deed is a certificate that is issued under the company seal it has a date of redemption and the amount of repayment mentioned on it. They have a fixed rate of interest. The debenture holders are paid interest and the interest payable is a charge against the profits of the company and even if the company has been in law the interest will still be payable.

The equity of the company remains unchanged as a venture is a form of death and a company can get its required fund without diluting the equity. A debenture is a tax-deductible expense and is quite useful when the company is tax planning because the interest that has to be paid on debentures is a charge against a profit of the company. Since the loan is secured there is very little risk to debenture holders and even if the company is at loss the interest will still be payable. When a company is planning for debentures it is encouraging long-term planning and funding and debentures tend to be cheaper when compared to other forms of lending.

There are some disadvantages of debentures. It is sometimes a financial burden for the company as even at the time of loss the interest is still payable. A company trades on equity when they are issuing debentures and that makes a company dependent on debt and for the financial health of a company a skewed debt-equity ratio is Not good. Debentures have a fixed interest rate and can prove very expensive during the depression when the profits are continuously declining. Redemption of a debenture can imbalance the liquidity as there is a constant cash outflow for the company. The company will have to discharge its liability and remove it from the balance sheet and, it will be a huge transaction for the company as the amount is quite significant.