what are E- groups used for? Also state its drawbacks.
Answers
1. Fixed obligation- A company has to pay a fixed interest payments to the debentureholders at any cost, irrespective of the fact that the company has earned profits or suffered losses. Hence, issue of debentures makes a company obliged to make fixed payments, so it is regarded as a charge on the company.
2. Definite time period- Debentures are issued for a definite time period. Thus, unlike equity shares (which can be retained by a company forever), debentures cannot be retained by a company for its lifetime. Therefore, a company has to to look for other funds raising alternatives at the maturity of the debentures.
3. Charge on Assets- A part of debentures namely, secured debentures are secured against the company's assets. In such cases, if the company fails to make interest payments or fails to pay-back the principal amount, then the debentureholders have the full right to sell-off the assets and recover their respective dues.
following are a few drawbacks that are associated with the issue of debentures.
1. Fixed obligation- A company has to pay a fixed interest payments to the debentureholders at any cost, irrespective of the fact that the company has earned profits or suffered losses. Hence, issue of debentures makes a company obliged to make fixed payments, so it is regarded as a charge on the company.
2. Definite time period- Debentures are issued for a definite time period. Thus, unlike equity shares (which can be retained by a company forever), debentures cannot be retained by a company for its lifetime. Therefore, a company has to to look for other funds raising alternatives at the maturity of the debentures.
3. Charge on Assets- A part of debentures namely, secured debentures are secured against the company's assets. In such cases, if the company fails to make interest payments or fails to pay-back the principal amount, then the debentureholders have the full right to sell-off the assets and recover their respective dues.