- Maturity: Debentures are to be repaid at a definite time stipulated. The company may have to set aside funds out of the earnings of the company at periodic intervals for retiring the debentures.
- Claims on Income: Debenture or Bond holders have priority of claim on income of the company over equity and preference shareholders. Irrespective of the level of earnings, the company is liable to pay interest to the debenture holders. The default in payment of interest may lead to debenture holders resorting to law and causing winding up of the company.
- Claims on Assets: In the event of liquidation of the company, the debenture holders have priority to get their principal amount plus interest before the shareholders are paid. While even the unsecured debentures have general lien over assets, the debenture holders have no right in the surplus assets, if any.
- Control: Debenture holders have no voting rights either to elect directors or in any other matter. They have no say in the management of the company, so long as their interests are paid regularly and covenants if any in indenture are met. If there is any default in the payment of interest or principal amount, debenture holders may take control over the company.
The important features of debentures are
- Debenture holders are the creditors of the company carrying a fixed rate of interest.
- Debenture is redeemed after a fixed period of time.
- Debentures may be either secured or unsecured.
- Interest payable on a debenture is a charge against profit and hence it is a tax deductible expenditure.
- Debenture holders do not enjoy any voting right.
- Interest on debenture is payable even if there is a loss.