In this post we are going to discuss about Debentures , it’s features, various types of Debentures……..
📌What is Debenture?
📌 Meaning of Debentures.
📌 What are the features of debentures?
📌 Characteristics of debentures.
📌 Various types of Debentures.
📌 Issue of debentures as collateral security.
📌 Discuss the method and sources of redemption of debentures.
Let’s Begin………. .📚
Meaning of Debentures:
According to section.2(30) of the companies Act 2013, debentures include “debentures stock, bonds and any other securities of a company evidencing a debt whether constituting a charge on the assets of the company.
Debentures are debt instruments issued by a joint stock company. Amounts collected by way of debentures form a part of the loan capital of a company. They are repayable after a fixed period. Debenture holder get interest on their debentures. They are creditors of the company. They don’t get dividend .Only shareholders get dividend.
The characteristics of debentures are as follows:
1. Debentures are debt instruments .
2. They usually carry fixed rate of interest.
3. They are usually repayable at the end of a fixed period . Repayment of debentures or cancellation of debentures liability in the books of the company is known as redemption of debentures.
4. They might be issued at par, premium or at discount depending on the reputation of the company.
5. They can also be placed privately or offered for public subscription.
6. They may not be listed in the stock .
7. If offered for public subscription, they must be rated by a credit rating agency approved by SEBI, before listing.
8. Interest is payable on debentures at a fixed rate irrespective of the profits earned by the business.
9. Debentures may be possibly issued with or without the security of assets of the company.
10. In the event of winding up of the company the debentures Holders are treated as creditors and given priority in repayment of their money.
11. Debenture holder normally don’t have representation in the Board of the company.
Q: Define the meaning of Debentures and its various types.
Ans : Debentures: A debentures is written acknowledgement of by a company under its common seal, generally secured by floating Change on company’s assets. Interest is paid to debentures holders at a fixed rate at regular intervals.
Types of Debentures
Debentures are classified as follows:
1. On the basis of repayment: Redeemable Debentures and Irredeemable or perpetual Debentures.
2. On the basis of transferability: Registered Debentures and bearer Debentures.
3. On the basis of security: Simple or naked debentures and Mortgage debentures.
4. Based on Conversion: Convertible debentures and Non-convertible debentures.
5. On the basis of pre-mature Redemption rights : Debentures with “call” option and debentures with “put” option.
6. On the basis of coupon Rate (interest rate): Fixed rate, floating rate debentures and zero-coupon bonds .
Q: Describe the issue of Debentures as collateral security.
Ans : when debentures are issued as security as well as to any other security against a loan or bank overdraft such an issue of debentures is known as issue of dentures as collateral security. The use of such an issue an issue is that if the company does not refund the loan and the interest and the main security is not adequate, the bank will be authorised to sell the debentures in the market or the bank may retain the debentures with it. If the company refunds the loan, the bank will return the debentures issued as collateral security to the company.
Redemption of Debentures
Q: Discuss the methods and sources of redemption of Debentures.
Ans: Meaning of Redemption: Redemption of debentures is the discharge of debenture liability. It can be done either by refunding the money to debenture holder or converting the debentures into shares . The condition of redemption are certainly Stated at the time of issue of debenture in the prospectus. As it may be redeemed at par, premium or discount as per the terms of issue. The period of maturity, redemption amount, yield on Redemption etc ,will be stated in the prospectus. In case the Non-convertible debentures proposed to be rolled over (repayment extended for an additional period), a required option should be given to the debenture holders who wish to withdraw from the debenture programme, as per the terms issued by SEBI.
Sources of funds for redemption of Debentures:
Debentures is an important responsibility to be fulfilled by a joint stock company. Negligence to redeem debentures will disqualify the directors of the company. Moreover, such a default will invite harsh penalties and loss of reputation. As the redemption of debentures drains a huge amount of resources, companies will make further preparation to meet this end .
(¡) Redemption of Debentures- from the profits of fresh issue of share capital and debentures.
(¡¡) Redemption of Debentures- out of accumulated profits.