Meaning of Debentures: The word ‘debentures’ has been derived from a Latin word ‘debere’ which means to borrow. A debenture is a written instrument acknowledging a debt issued under a Common Seal of the Company.
In other words, it is an acknowledgement of debt due by a company.
Classification of Debentures -
On the basis of Redemption, Debentures can be classified as Redeemable Debentures and Irredeemable Debentures.
(a) Redeemable Debentures: These are debentures which will be repaid by the company within or at the end of a specified period.
(b) Irredeemable Debentures: These debentures are payable by the company only at the time of winding up of the company.
On the basis of Security, Debentures can be classified as Mortgage Debentures and Simple/Naked Debentures
(a) Mortgage Debentures: These are secured debentures. A charge is created on assets of the company in favour of debentures holders.
(b) Simple/Naked Debentures: These debentures carry no security and hence debenture holders have the position of unsecured creditors of the company.
On the basis of Transferability, Debentures can be classified as Registered Debentures and Bearer Debentures
(a) Registered Debentures: In the case of these Debentures, the company maintains a register of debentures holders in which record of the names, addresses and holding of all the debenture holders is maintained.
(b) Bearer Debentures: These debentures are not recorded/registered, and hence they can be transferred by mere delivery. The payment of interest on such debentures is made on the production of coupons attached to such debentures.
On the basis of Priority, Debentures can be classified as First Debentures and Second Debentures
(a) First Debentures: These are the debentures which have to be repaid & on which interest has to be paid before other debentures.
(b) Second Debentures: These are the debentures which will be paid & on which interest will be paid after the first debentures have been paid.
On the basis of convertibility, Debentures can be classified as Convertible and Non-Convertible Debentures
(a) Convertible Debentures: Debentures which are convertible into shares are termed as convertible debentures.
(b) Non-Convertable Debentures: These are the debentures which can not be converted into shares.
Also refer - Features of Equity Shares
In other words, it is an acknowledgement of debt due by a company.
Classification of Debentures -
On the basis of Redemption, Debentures can be classified as Redeemable Debentures and Irredeemable Debentures.
(a) Redeemable Debentures: These are debentures which will be repaid by the company within or at the end of a specified period.
(b) Irredeemable Debentures: These debentures are payable by the company only at the time of winding up of the company.
On the basis of Security, Debentures can be classified as Mortgage Debentures and Simple/Naked Debentures
(a) Mortgage Debentures: These are secured debentures. A charge is created on assets of the company in favour of debentures holders.
(b) Simple/Naked Debentures: These debentures carry no security and hence debenture holders have the position of unsecured creditors of the company.
On the basis of Transferability, Debentures can be classified as Registered Debentures and Bearer Debentures
(a) Registered Debentures: In the case of these Debentures, the company maintains a register of debentures holders in which record of the names, addresses and holding of all the debenture holders is maintained.
(b) Bearer Debentures: These debentures are not recorded/registered, and hence they can be transferred by mere delivery. The payment of interest on such debentures is made on the production of coupons attached to such debentures.
On the basis of Priority, Debentures can be classified as First Debentures and Second Debentures
(a) First Debentures: These are the debentures which have to be repaid & on which interest has to be paid before other debentures.
(b) Second Debentures: These are the debentures which will be paid & on which interest will be paid after the first debentures have been paid.
On the basis of convertibility, Debentures can be classified as Convertible and Non-Convertible Debentures
(a) Convertible Debentures: Debentures which are convertible into shares are termed as convertible debentures.
(b) Non-Convertable Debentures: These are the debentures which can not be converted into shares.
Also refer - Features of Equity Shares
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