Question

Answer the question.
Explain any five types of debentures through which a company can collect borrowed capital from the public.

Answer 1

Five types of debentures are:

(i) Mortgage and Unsecured Debentures: Mortgage debentures are those debentures which are secured by either a fixed charge or a floating charge on the assets of the company. In case, the company makes a default in payment, the debenture holders can recover their dues from the mortgaged property. Whereas unsecured debentures are those debentures that are not secured by a charge.

(ii) Redeemable and Irredeemable Debentures: Redeemable debentures are repayable on a predetermined date or at any time prior to their maturity at the option of the company. Irredeemable debentures are those debentures that are not repayable during the lifetime of the company and hence will be repaid only when the company is wound up.

(iii) Bearer Debentures: Bearer debentures can be transferred by mere delivery as no record of such debentures is kept in the Register of Debenture holders. Payment of interest is made on the production of coupons attached to the debenture. No legal formalities are required for their transfer and no formal notice or intimation to the company is necessary.

(iv) Registered Debentures: These arcs the debentures, in respect of which the names, addresses, and particulars of holdings of the debenture holders are entered in a register kept by the company. Such debentures can be transferred only by transfer deed or intimation to the company and not mere delivery.

(v) Convertible and Non-Convertible Debentures: In the case of convertible debentures, the debenture holders arc gave the option to convert their debentures into equity shares after a specified period. Debenture holder has the option of exchanging the whole or a part of the number of their debentures for shares. In the case of non-convertible debentures, these are those debentures that do not earn the right to be converted into equity shares.