Question

Discuss the importance of debentures as sources of medium and short-term finance.

Answer 1

1. Debentures represent borrowed funds.
2. Interest on debentures is paid at a fixed rate.
3. Interest is payable every year, irrespective of whether there are profits or not.
4. Debentures generally carry no voting rights.
5. Debentures may involve a charge on the assets of the company.
6. If interest and the borrowed sum are not paid to debenture holders in time, they can take legal action (including winding up) against the company.
7. Debentures are generally repayable after a specified period of time.