In
law, a
debenture is a document that either creates a debt or acknowledges it. In
corporate finance, the term is used for a medium- to long-term debt
instrument used by large companies to borrow money. In some countries the term is used interchangeably with
bond,
loan stock or
note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become
share capital.
[1]
Debentures are generally freely
transferable by the debenture holder. Debenture holders have no rights to vote in the company's general meetings of
shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's
financial statements.