DEBENTURES AND TYPES DEBENTURES. Definition of debentures: A debenture may be defined as a bond, acknowledging a loan, generally under the company’s seal and bearing a fixed rate of interest.

It is usually giving security for the repayment of the loan and the payment of the interest.

In other words, debenture is a document setting out the terms of a loan to a company, i.e. a certificate of indebtedness. Holders of debenture cannot share from the profit of the company.


The Company Act defines debenture as: “A written acknowledgement of indebtedness by the Company, setting out the terms and conditions of the indebtedness, and includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not.”

Types of debentures

  • Mortgage debentures: Mortgage debentures are issued on the security of the company’s assets. It gives a charge upon the whole or part of the company’s assets upon liquidation.
  • Simple or naked debentures: Where there is no charge created on the

  • company’s property or assets, the  debenture is described as naked or  simple. In this case, there is no security for the debenture.

  • Secured debenture: Secured debenture is the type whose repayment is guaranteed through a collateral security tendered by the borrower.

  • Redeemable debenture: Redeemable debenture is repayable at a date whit has been fixed or determined. A company may issue debentures which are liable be redeemed.

  • Irredeemable debenture: Irredeemable debenture is repayable only in the event of some specified contingency, such winding up of the company. It cannot cashed at any time and it is bought solely


1A debenture is a certificate of indebtednessA share is a unit of capital
2It is a loanIt is not a loan
3Holder is a creditorHolder is one of the owners
4Holder receives interestHolder receives dividend
5Interest is credited to profit and loss accountDividend is credited to appropriation account
6The holder receives interest before profitHolder will wait for the distribution of distribution profit
7Entitled to fixed, regular and predetermined payment of interestEntitled to dividends  that may vary will the profits

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