Debenture certificate. Image credit catawiki.com

Debenture certificate. Image credit catawiki.com

ZIMSEC O Level Commerce Notes: Debentures

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

Naked debentures

  • issued without any property attached to them.
  • Not a very safe of investment.

Mortgaged Debentures

  • 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.

Redeemable Debentures

  • 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.

Irredeemable debentures

  • Cannot be bought back.
  • The amount of money borrowed will only be paid back after the company is liquidated.

To access more topics go to the Commerce Notes page.


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