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A company may borrow funds from the public by issue of Debentures or Bonds to meet its requirements for long-term funds requirements. A Debenture is a document issued under the company’s seal promising to pay periodic interest and return the principal sum at a fixed date in future. Debentures may be secured against specific assets. Even if they are not specifically secured, debenture holders have a general lien on the assets of the company.
If a company needs funds for extension and development purpose without increasing its share capital, it can borrow from the general public by issuing certificates for a fixed period of time and at a fixed rate of interest. Such a loan certificate is called a debenture. Debentures are offered to the public for subscription in the same way as for issue of equity shares. Debenture is issued under the common seal of the company acknowledging the receipt of money.
