When a company needs some funds for its working capital or to purchase some fixed assets or for some other purposes, it has an option to take loan from open market. But the person who gives the loan to a company, would like to have some written proof regarding the interest rate, date of payment of interest and repayment of loan etc. from the company in respect of the loan given to avoid unnecessary problems. This written proof is called as debenture.
In simple words the debenture is a written acknowledgment by a limited company to which loan is given. Debenture is a written contract under the seal of a company for repayment of the principal sum and the payment of interest at a fixed rate on the specified date. The types of debentures are as under:-
- Secured Debentures:- Where the Debenture holders have the right on the assets of the company in case of default of repayment of principal amount and interest amount.
- Unsecured Debentures:- Where no right on assets are given to the debenture holders in case of default of payment.
- Convertible debentures:- The debentures which can be converted in to equity shares at the option of the debenture holder.
- Non-convertible debentures:- These debenture can not be converted in to equity shares.
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