Debenture

A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.

In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning power, not by a lien on any specific asset."^[1] It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy, debenture holders are considered general creditors.

The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Nomenclature

In practice the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa.

References

1. ↑ Black's Law Dictionary. Second Pocket Edition. 2001. p. 176.

See also

• Floating charge
• Security interest
• Bond (finance)
• Gold exchange-traded fund
• Convertible debenture