is defined as a certificate of agreement
which is given under the company
and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.
In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning power, not by a lien on any specific asset. It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.
The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.
In the United Kingdom
debentures have frequently been used as a mechanism for raising funds to build or finance sports or leisure venues. Often these debentures pay little or no interest, but entitle the holder to privileges, usually tickets for the venue. For example, the All England Lawn Tennis and Croquet Club
first issued debentures in 1920 in order to purchase the current premises in Wimbledon, London
, and debenture issues take place every five years. The 2001-2005 debenture issue was priced at £2,000 each, with an additional premium of £18,000, and Value Added Tax
of £3,150; holders of these debentures are entitled to a free seat in the Centre Court Stand for each day of the championships for five years, and have access to exclusive lounge and catering facilities. At the Royal Albert Hall
debenture holders are known as members
; they own rights to individual boxes, and are entitled to view almost all performances. In 2003 Box 70 was offered on the open market for £250,000 . Other stadia financed through the issue of debentures include Millennium Stadium
, Wembley Stadium
, The Emirates
, Twickenham Stadium
, Lord's Cricket Ground
, and Trent Bridge
In practice the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa.