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(7) The Trust Deed is then executed with the trustees for
debenture holders.
ANALYSIS OF DATA :
ISSUE OF DEBENTURE AT PAR
Types of Debentures
There are various types of debentures like
redeemable, irredeemable / perpetual, convertible,
non-convertible, fully secured, partly secured, mortgage,
unsecured, naked, first mortgaged, second mortgaged, the
bearer, fixed, floating rate, coupon rate, zero
coupon, secured premium notes, callable, puttable, etc.
The debenture classification is based on their tenure,
redemption, mode of redemption, convertibility, security,
transferability, type of interest rate, coupon rate,
etc. Ultimately, a debenture is not like a standard product
configured strictly. It is an agreement to be agreed
between the corporation and the debenture holders that
decides the characteristics of a debenture. Following are
some examples of agreement templates for ready
reference and quick drafting.
REDEEMABLE AND IRREDEEMABLE
(PERPETUAL) 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. 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 liquidationof the company or as
per the terms of the issue, when the company chooses to
pay them off to reduce their liability by issues a due
notice to the debenture holders beforehand.
Convertibility
CONVERTIBLE AND NON-CONVERTIBLE
DEBENTURES
Convertible debenture holders have an 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. On the
contrary, non-convertible debentures are simple
debentures with no such option of getting converted into
equity. Their state will always remain of a debt and will
not become equity at any point in time.
It is essential to prepare an agreement that clearly
expresses all the terms and conditions. For ready
reference, find the Convertible Debenture Template here.
CONCLUSION :
Several companies decide to issue debentures to raise
capital, along with the other sources of long-term finance.
The companies need to follow the regulations and the
procedure associated with the issuance of debentures.
Further, they also need to account debentures issued at a
par, premium or discount accordingly.
DISCUSSION :
Disadvantages of Debentures:
Following are the disadvantages of debentures:
ADVERTISEMENTS:
(b) Debentures are issued to trade on equity but too much
dependence on debentures increases the financial risk of
the company.
SUGGESTION:
Here are some of the benefits of buying debentures