• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Business
  • Commerce
  • Management
  • Insurance
  • Banking Finance
  • Marketing & Advertising
  • Tech

Business Finance Articles

Your First Financial Choice....

  • Education
  • Career
  • Investment & Money
  • Accounting & Taxation
  • Transportation & Logistics
  • Industries

Types of Debentures

Last Updated on February 20, 2020 By Lisa C. Townes Leave a Comment

Term ‘Debenture’ is taken from the Latin word ‘Debure’. Which means “to Borrow”. Debentures are the company’s debt. These are the most popular form of debt capital. It is a form of a loan which is taken by the company to raise its capital.

Debentures are the instrument used by the companies and government to issue a corporate based loan on the reputation of the companies and a fixed rate of interest. Debentures characterize a refined form of an ancient promissory note that is raised to fulfill the long term capital needs.

Table of Contents

  • Types of Debentures
    • 1. Simple Debentures
    • 2. Mortgage Debentures
    • 3. Bearer Debentures
    • 4. Registered Debentures
    • 5. Redeemable Debentures
    • 6. Irredeemable Debentures
    • 7. Floating Debentures
    • 8. Convertible Debentures
    • 9. Equipment Trust Debentures
    • 10. Income Debentures
    • 11. Legal Debentures

Types of Debentures

Following are the eleven types of debentures used by a Joint-stock company

1. Simple Debentures

Simple debentures are also called “Naked debentures or Un Secured Debentures”. These debentures issued without any security on the asset, that’s why the holders of simple debentures are treated as unsecured creditors at the time of finish up of the company.

2. Mortgage Debentures

Theses are the Debentures which are issued against the company’s fixed asset like land, building, plant, machinery. These debentures are also called secured debentures. There are two types of mortgage debentures

  • First mortgage debentures
  • Second mortgage debentures

First mortgage debentures are those which have the first right to claim the fixed asset when the company is unable to repay the debentures on the due date.

Second mortgage debentures are those which have the second right to claim when the company is unable to repay.

3. Bearer Debentures

Bearer Debentures are unsecured debentures and also unregistered. Issuing authority of bearer debentures does not keep any record of the purchaser’s name and also the owner’s name of the listed debenture. Some bearer debentures have the coupon which is generally used to pay the interest.

4. Registered Debentures

Registered debentures are those debentures that have a complete record of debenture holders in the register of the company’s debenture holder register. Transferred of these must be written into the books of the company in the case of shares. These are not negotiable or transferable if the regular instrument of transfer is sanctioned by the director of the company. Interest is paid to the registered debentures holders in the same way as the distribution of the dividend.

5. Redeemable Debentures

These Debentures are very common these days because the amount of these debentures are repayable after a specified period. These are issued against the condition that the company shall redeem them on the stated date.

6. Irredeemable Debentures

These are the debentures that are not repayable after the definite period.The amount of irredeemable loan is repayable on the happening of definite possibilities. Simply there is no fixed limit within which the company should repay the loan. Usually, these debentures are paid when the company goes into liquidation.

7. Floating Debentures

In floating debentures, total assets must be signed over by the creditors. These types of assets may be Bills Receivable, Stock and Book Debts. In case of the failure on behalf of the company, It makes a charge in favor of debenture holders against other creditors.

8. Convertible Debentures

These are the debentures which are long term debt and converted into the company’s ordinary or preference shares and stock after a specified period. This opportunity is given to those which are stated in the conditions of debenture holders.

9. Equipment Trust Debentures

These are the debentures which are protected by tangible property or physical property. These debentures are issued for a specific purpose.  Funds from these debentures are raised to purchase some equipment to run the business.

10. Income Debentures

These types of debenture holders are authorised to receive the interest out of the current year’s profit at a fixed rate. In case if the company is not generating profit than no interest will b paid.So these debentures are not very useful for the organization and not very popular.

11. Legal Debentures

Legal debentures are those where the name of the property or title of the property of the company is transferred by deed to creditors as security for the loan.

lisa
Lisa C. Townes

Lisa is a passionate travelers. She spends 3 months every year visiting different places worldwide. She has visited almost every famous place in the world. She herself is an affiliate blogger

Filed Under: Investment & Money

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

concepts of markets
Leadership of an organization
Leadership of an organization
meeting of business team
Bad manager shouting on team
boy hand look in LCD
Profit Graph
woman using a laptop
pineapple and bottle
People sitting on chairs
Girl leading the team
Girl analysis the organization report
person-using-laptop
Microplastics Harmful Water bottle
Business Retailing
What You Ought To Know About the Insurance Process
Forklift and Pallet Truck
Woman getting a signature of man on documents
Man write something on the page
investing mistake
Business-Accounting
Translation Services
PTO
hands-on-laptop
Mortgage employee

Footer

  • About US
  • Contact Us
  • Blog
  • Comment Policy
  • Terms & Conditions
  • Privacy Rights
  • Privacy Policy
  • Follow Us On
  • – Google News
  • – Facebook
  • Entrepreneur Skills
  • Business Cycle
  • Business Ideas
  • Speculator
  • Be Wealthy
  • Psychology in HRM
  • HRM in Business
  • Businessman Qualities
  • Salespeople Types
  • Health & Business
  • Business Success Rules
  • Stress At Work
Copyright © 2018-2022 BFA