It gives the lender security over the borrower’s assets. Typically, a debenture is used by a bank, factoring company or invoice discounter to take security for their loans. A director who has advanced or lent money into their own company could take a debenture to secure the loan.

What are the characteristics of debenture?

Characteristics of Debenture

• Written promise.
• Company Seal.
• Borrowed Funds.
• Maturity Period.
• Claim in Income.
• Priority Claim on Assets.
• No Controlling Power.
• Fixed Rate of Interest.

What is a debenture pros and cons?

Advantages and Disadvantages of Debentures Investors who want fixed income at lesser risk prefer them. Financing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible. The company does not involve its profits in a debenture.

Is debentures long-term debt?

A debenture is a long-term debt instrument issued by corporations and governments to secure fresh funds or capital. Coupons or interest rates are offered as compensation to the lender., etc.

Who is called debenture holder?

A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder. A shareholder or member is the joint owner of a company; but a debenture holder is only a creditor of the company. Shareholders are invited to attend the annual general meeting of the company.

What are the disadvantages of debenture?

Disadvantages of Debentures

• Debentures are not suitable for all Companies. It is not suitable for companies with fluctuating income and companies producing goods, which have an elastic demand.
• Permanent Burden.
• Requires huge Fixed Assets.
• No Voting Rights.
• Difficulty in Repayment.
• Affecting the capacity to raise Loans.

  What is the point of a debenture?

  Debentures generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business.