Debenturs are marked at the same amount in rupees, Which the company borrowed ,though purchasing power of money may have changed
substantially
Answers
Answer:
Introduction To Concept of Debentures
In every corporate organization, enormous or not, engaged in doing business or involved in manufacturing activity or industry providing services, there is always requirement of finances and funds. In order to run a business effectively and successfully, adequate amount of capital is necessary. In some cases it is capital is arranged through internal resources i.e. by way of issuing equity share capital or using accumulated profit . Equity funds are raised by taking money from the shareholders by way of their initial contribution in fixed income securities such as treasury bills and bonds. The share holders are the owners of the company. Equity funds most of the times is not adequate and the organization is resorted to external resources for arranging capital i.e. External Commercial Borrowing(ECB), Debentures, Bank Loan, Public Fixed Deposits etc. There is a provision of powers to borrow for the company in the memorandum of association of a company. The loans are raised by the corporate sector by the way of issuance of debentures. As the funds raised by the issue of shares are are not adequate to meet the financial demand of the company for long run. Hence, the companies choose to raise long- term funds through debentures. A Debenture is basically some of the loan amount the company was interested to raise from the public , that is why it issues debentures. A person who has bought a debenture and holding it is called a debenture holder. A debenture holder is the creditor of the company. Under the seal of the company . Debenture is document issued under the seal of the company. Debenture is an acknowledgment of the funds received by the company equal to the nominal value of the debenture. It includes the payment of interest at a fixed rate till the times the principal sum becomes repayable. There may or may not be a charge put on the sets of the company as security. The date of redemption along with the rate and mode of payment of interest are mentioned in it. The last few years has seen the capital market of India to evolve at a much faster rate, the reasons are launch of new instruments and the modifications in the old technology. In the present situation debentures prove to be a great contributor to support the financial needs of the corporate sector. The issue of debentures is a means significant for raising capital from the market as contrasted with the other modes like , preference shares, bonus as shares, equity shares, rights issues. The provisions of the Companies Act identifying with plan additionally apply to debentures where they are issued to the general population. The Companies act does not provide for a exhaustive definition of debentures but an inclusive definition. As per the definition of debenture[1]given in Section 2(30) of the Companies Act 2013 "Debenture includes debenture stocks, bonds or any other instruments of a Company evidencing a debt, whether constituting a charge on the assets of the Company or not". This sections proves that the company has right to issue bonds or debenture which are instruments as an debt, which can be both secured or unsecured by the way of creating charge on the way of creating charge on the assets of the company. A company may issue debentures as a type of long-term unsecured bond on agreeing to repay it at a predetermined future date. The company usually pays interest to the debenture holders at the end of every year till the time of maturity , but if it is not able to pay either the interest or the principal amount of the loan the creditors of the company has right to ask company into liquidation to recover their money by the way of selling the assets of the company.
Explanation:
Characteristics of Debentures
·Debenture is a movable property. It is in the form of a certificate of indebtedness of the company and issued by the company itself. It generally creates a charge on the undertaking or undertakings of the company. There is usually a specific date of redemption.
·The debenture holders are creditors to the company and they donot have any claim of ownership of the company unlike share holders. The company is only under debt of the debenture holders.
·As the debenture holders are not the owner of the company so they are not entitled with the administration and management of the company.
·The debenture holder need not be concerned with the profits or loss of the company, they have a fixed rate of interest on the principal amount which they get every year irrespective of the financial condition of the company.
·Debentures usually have a charge on the assets of the company, which means that if the company on liquidation is not able to repay the amount the debenture holders can sell of property of the company to recover money.
·There is an undertaking given by the company to repay debenture holders the principal amount along with the interest at t