- Debenture holders are a company's creditors. This means lending capital to the company does not give the debenture holders ownership of the company. This is advantageous for the borrower (company) as it does not have to relinquish control of the company to debenture holders. For debenture holders, the lack of ownership means that they do not have a say in what the company may or may not do with the capital lent to it, nor do they vote at the annual general meeting.
- A company may redeem the amount it issues on debentures. Companies typically issue debentures for debt maturity periods of 10 to 30 years, within which it should pay the debt owed to debenture holders. Redeeming the debenture amount means paying back the borrowed money in a lump sum at the end of the debt maturity period. This is advantageous for the company, especially if it does not have cash to pay off debts in installments right away, as it can pay on a later date.
- Companies typically secure debentures using the assets of the company as collateral. This is advantageous for investors because they are able to seize the company's assets if the company fails to pay its interest on the debenture. Investors may also seize assets if the company fails to pay the original principal after the maturity period. But companies that require few assets for operations such as trading companies may lack enough assets to offer as collateral to secure capital through debentures.
- Debentures usually carry a fixed rate on interest payments. This means that the interest rate remains the same regardless of changes in interest rates in the market. The interest rates also remain fixed regardless of whether the company is making any profits. The company may have a difficult time paying off its debt if it cannot generate enough profits. But this high risk is advantageous for investors because debentures have higher returns for investors compared with government bonds..
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