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Question
Discuss the importance of debentures as sources of medium and short-term finance.
Solution
- Debentures represent borrowed funds.
- Interest on debentures is paid at a fixed rate.
- Interest is payable every year, irrespective of whether there are profits or not.
- Debentures generally carry no voting rights.
- Debentures may involve a charge on the assets of the company.
- If interest and the borrowed sum are not paid to debenture holders in time, they can take legal action (including winding up) against the company.
- Debentures are generally repayable after a specified period of time.
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