Tag: meaning of debentures

Debentures are never redeemed by the company. This statement is False. 
Reasons :
(i) Debenture is a document issued by a company under its company seal and signed by the Director, acknowledging the loan accepted by the company from a party under certain terms and conditions stated there in.
(ii) Debenture capital represents borrowed funds, which means, it has to be repaid after the expiry of certain period of time, with a fixed rate of return.
(iii) On the basis of redeemability there are two types of debentures : (a) Redeemable Debentures - Which are repaid by the company on the expiry of specified time. (b) Irredeemable Debentures - These debentures are repaid by the company according to its convenance. Therefore, it can't be said that debentures are never redeemed by the company. 

This statement is False.
 Reasons: According to Webster's Dictionary, a Debenture is an interest-bearing certificate issued by a government or business, promising to pay to the holder specified sum at a specified date. In fact, there is no difference between Debentures and bonds. 
(1) Debenture is a loan taken by company for medium to long period. Debenture holder therefore is the creditor of the company. 
(2) Debenture capital is returnable and therefore has no permanency. Debenture holder earns interest as return. 
(3) Debenture holder cannot participate in management of company. They cannot take any decision on matters of the company. 
(4) Debenture holder has no voting rights on matters related to company like he cannot appoint Directors / Auditors of the company. 
(5) The real owner of the company is the equity shareholder. Equity shareholders are risk bearers of the company and they are having the voting rights and taking participation in management of the company. Hence Debenture holders are not the owners of the company.