# Debenture — Definition and Features
## Statutory Definition [Section 2(30)]
Debenture includes:
- Debenture stock,
- Bonds, or
- Any other instrument of a company evidencing a debt,
- Whether constituting a charge on the assets of the company or not.
## Exclusions from Definition
The following shall NOT be treated as debentures:
1. The instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
2. Such other instrument, as may be prescribed by the Central Government in consultation with the RBI, issued by a company.
| Debenture INCLUDES | Debenture EXCLUDES |
|---|---|
| Debenture stock | Instruments under Chapter III-D of RBI Act, 1934 |
| Bonds | Other instruments prescribed by CG in consultation with RBI |
| Any other instrument of a company evidencing a debt | |
| (Whether secured by charge or not) |
## Key Features of Debentures
### a. Smallest Unit of Loan
A debenture is the smallest unit of a sizeable amount of loan.
### b. Certificate Evidence
When debentures are issued, applicants receive certificates representing the money they have lent.
### c. Execution of Certificate
A debenture certificate is issued by the company under its common seal (if any), or under the signatures of two directors or a director and the company secretary (if appointed).
### d. Periodic Interest
The company pays periodic interest on the amount raised through debentures until they are fully redeemed.
### e. Pre-fixed Rate of Interest
Generally pre-fixed with the rate of interest the company intends to pay.
### f. No Voting Rights [Section 71(2)]
No company shall issue any debentures carrying any voting rights.
### g. Movable Property [Section 44]
A debenture is in the nature of movable property, transferable as per the AOA of the company.
### h. Secured or Unsecured
May be secured (charge created on assets in favour of debenture trustee) or unsecured.
### i. Mode of Redemption
May be redeemed at the end of full term or in installments (yearly, bi-yearly, etc.).
### j. Convertibility Option
Terms of issue may provide for conversion into equity shares at maturity at the option of debenture holders.
### k. Delivery Timeline [Section 56(4)(d)]
Debenture certificates must be delivered within 6 months from the date of allotment, unless prohibited by law or court order.
## Types of Debentures
```
TYPES OF DEBENTURES
|
---------------------+---------------------
| | |
By SECURITY By CONVERTIBILITY By REDEEMABILITY
| | |
Secured Convertible Redeemable
Unsecured (Mandatorily/ Irredeemable
Optionally;
Partially/Fully)
Non-Convertible
```
## Key Advantage
Issue of debentures is the most convenient way of borrowing large sums of money, while debenture holders do not exert any influence over the ownership and working of the company — unless their interest is jeopardized by certain decisions.