Debentures are ranked as creditors of the company. Debenture is long-term debt and issued under the common seal of the company. In brief, a debenture possesses the following characteristics.
1. Loan Instrument
Debenture is an instrument of loan.
2. Fixed Rate Of Interest
Interest is paid at fixed rate every year and debentures is known as"fixed cost bearing capital".
3. Common Seal
Debenture has common seal of the company.
4. Redeemable
Debenture is redeemable at a fixed and specified time.
5. Creditors Not Owners
Debenture-holders are the creditors of company not owners.
1. Loan Instrument
Debenture is an instrument of loan.
2. Fixed Rate Of Interest
Interest is paid at fixed rate every year and debentures is known as"fixed cost bearing capital".
3. Common Seal
Debenture has common seal of the company.
4. Redeemable
Debenture is redeemable at a fixed and specified time.
5. Creditors Not Owners
Debenture-holders are the creditors of company not owners.
6. Long Term Capital
Debenture is a form of long-term borrowed capital.
7. No Voting Right
Debenture-holders have no right to cast vote in company's general meting.
8. Priority For Repayment
At the time of liquidation, first priority is given to debenture-holders at the time of repayment.
9. Expensive
Debentures can be issued to fulfill the requirement of huge capital. Small firms most often find it more expensive source of financing.