Question

Explain any four types of debentures through which a public limited company can collect its borrowed capital from the public.

Answer 1

Redeemable Debentures: Redeemable debentures carry a specific date of redemption on the certificate. The company is legally bound to repay the principal amount to the debenture holders on that date.

Irredeemable (Perpetual) Debentures:
On the other hand, irredeemable debentures, also known as perpetual debentures, do not carry any date of redemption. This means that there is no specific time of redemption of these debentures. They are redeemed either on the liquidation of the company or when the company chooses to pay them off to reduce their liability’ by issues a due notice to the debenture holders beforehand.

Convertible Debentures: Convertible debenture holders have the option of converting their holdings into equity’ shares. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of debentures at the time of issue.

Non-Convertible Debentures: Non-convertible debentures are simple debentures with no such option of getting converted into equity. Their state will always remain of debt and will not become equity’ at any point of time.