Debentures are long-term debt and company issues them under its common seal. Debenture has the following characteristics and features:
· Debenture is a written certificate issued by the company.
· Company issues debentures under its seal (logo and stamp).
· It is medium term and long-term public borrowing capital.
· It contains pre fixed interest rate and maturity periods.
· It contains the mode of payment of principal amount and interest.
· Company pays fixed interest to debenture holders in every year or half yearly.
· Debentures are redeemable at a fixed and specified time.
· Debenture holders are the long-term creditors of company not owners.
· Debenture holders have no right to cast vote in company’s general meeting.
· At the time of liquidation, debenture holders get first priority for the repayment.
· Company issues debentures to fulfill the requirement of huge capital.
· For small firms or company debentures are more expensive source of financing.
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The main importances of debentures are following:
· Debentures holders receive a fixed rate of interest on their investment.
· Debentures are refunded before the equity shares at the time of dissolution (winding up) of the company.
· Generally, investment on debentures is secured.
· Debentures can be sold to another person.
· Debentures are convertible.
· Debentures pay fixed interest rate expenses.
· Debentures are important for long-term capital budgeting of an organization.
· Debentures help to maximize earning per share.
· Debentures help to reduce the burden income tax because interest is charged against profit and loss account.
· Debentures are the part of capital structures of the company and they provide the way to use leverage.
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