ACCA LW Eng Syllabus E. Capital And The Financing Of Companies - Explain The Meaning Of Loan Capital And Debenture - Notes 2 / 3
Debentures are a form of loan capital - 'a written acknowledgement of indebtedness'.
Debentures may be issued in a number of ways:
(They maybe redeemable or irredeemable)
Single debentures
Issued to a single provider
Issued in series
Issued to several providers (all rank equally - pari passu)
Debenture stock
Issued to the public, each person owns a proportion of the debt via a certificate
Differences between Shares & Debentures
| Feature | Shares | Debentures |
|---|---|---|
| Status | Member | Creditor |
| Return | Dividends – Variable | Interest - Fixed |
| Issued | NEVER at a discount | Discounted/Par/Premium |
| Security | None needed | Fixed/Floating charges |
| Liquidation Rank | Last | First |
So debentures get paid out before any shares (preference or ordinary)
Unlike shares they may be issued at a discount
Interest on them may be paid from capital
They are freely transferable