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Thus, the term ‘debenture’ simply means a document acknowledging a loan made to the corporate and providing for the payment of interest on the sum borrowed until the debenture is redeemed,i.e., the repayment of the principal . it's going to or might not be under seal then doesn't necessarily imply that any charge is given on the company’s assets, through such a charge usually exists.
Characteristic/features of Debenture
1. it's issued by the corporate and is within the sort of a certificate of indebtedness.
2. it always specifies the date of redemption. It also provides for the repayment of principal and interest at specified dates or dates.
3. It generally creates a charge on the undertaking or undertaking of the corporate .
Kinds of debentures
Registered debentures: Debentures made call at the name of particular persons and whose names appear within the register of debentures are referred to as registered debentures. they're transferable within the same way as shares. Interest, also because the debenture amount, is payable only to the registered holders.
Registered debentures: Debentures made call at the name of specified or particular persons and whose names appear within the register of debentures are referred to as registered debentures. they're transferable within the same way as shares. Interest, also because the debenture amount, is payable only to the registered holders.
Bearer debentures : Debentures that are payable to the bearer and whose name doesn't appear within the register of debenture holders are referred to as bearer debentures.
Secured debentures or mortgage debentures: These debentures are secured by a charge or mortgage on the entire a part of the assets of the corporate . The charge could also be specific or fixed when a specific asset like land and building is mortgaged. it's termed as a floating charge when it's created on current assets like stock, cash and their value are constantly changing.
Unsecured or naked debentures: Such debentures which aren't secured by any charge on the assets of the corporate are called unsecured or naked debentures. The holders of those debentures are within the position of unsecured creditors.
Redeemable debentures: Where debentures are to be redeemed, after a specified period or at the choice of the corporate , they're referred to as redeemable debentures.
Irredeemable or Perpetual debentures: This term doesn't connote that they're going to never be redeemed. It only indicates that no deadline is fixed for his or her redemption. However, they become repayable: I). When the corporate defaults in payment of interest, II). When it's wound-up.
Convertible debentures: These are debentures that give an choice to their holders to convert them into equity or preferred stock at a specified rate of exchange after a particular period. When such debenture holders exercise the proper of conversion, they easy to be lenders to the corporate and become its members. The convertible debentures could also be fully convertible or partly convertible.
Non-convertible debentures: Where no option is given to the holders of such debentures to convert them into preference or equity shares, they're called non-convertible debentures.
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