Question

Write a short note on Debentures.

If interest and borrowed sum are not paid to debenture holders in time, they can take legal action (including winding up) against the company. Justify this statement.

Answer 1

A debenture is a certificate or document a company issues under its seal acknowledging a debt. Additionally, the corporation promises to return the principal amount within the agreed-upon terms and by the agreed-upon date. Debenture holders are the people who own debentures, and they receive interest on the face value of their debentures at a specific rate. Whether the business made or lost money, it was still required to pay interest on its debentures. 

Debentures are made before payment of share capital in the event of a firm winding up. Debentures typically have a firm asset as their security. As a result, the risk is minimal. Since a debentureholder is merely a company creditor, they are not eligible to vote, participate in meetings or distribute surplus.