ZIMSEC O Level Commerce Notes: Debentures
- Are loan capital or money borrowed from financial institutions and individuals.
- Earn interest at a fixed rate.
- Interest is paid whether or not a company has made profits.
- Debentures are creditors to the company.
- A safe form of investment.
- May be secured against the company’s assets.
- Can be naked, floating, mortgaged or redeemed debentures.
- Debenture-holders can force a company into liquidation if interest is not paid.
Types of debentures
- issued without any property attached to them.
- Not a very safe of investment.
- Are secured against company assets e.g. buildings.
- Is a safe form of investment to the loan lender.
- In case of liquidation of a company:
- the attached property will be sold and
- the proceeds thereof are used to settle the debenture dents.
- Are issued for a fixed period of time.
- Can be bought back by the company after this time lapses.
- The amount borrowed by the company can be repaid on or before a fixed date.
- Cannot be bought back.
- The amount of money borrowed will only be paid back after the company is liquidated.
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