Features and Importance of Debenture

Features and Characteristics of Debentures

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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Importances of debentures

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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