Debentures are the most popular form of debt capital. The debenture classification is based on their tenure, redemption, mode of redemption, convertibility, security, transferability, type of interest rate, coupon rate, etc. Basically, a debenture represents a superior and refined form of the age-old promissory note. Ultimately, a debenture is not like a standard product configured strictly. Debentures include debenture stock, bonds, and any other securities of a company whether constituting a charge on the assets of a company or not. It is an agreement to be agreed between the corporation and the debenture holders that decides the characteristics of a debenture.
Types of Debentures on the Basis of Record Point of View
(a) Registered Debentures
These are debentures that are payable to the registered holders i.e., persons whose names appear in the Register of Debenture holders. These are the debentures that are registered with the company. In the case of registered debentures, the name, address, and other holding details are registered with the issuing company and whenever such debenture is transferred by the holder; it has to be informed to the issuing company for updating in its records. The amount of such debentures is payable only to those debenture holders whose name appears in the register of the company. Otherwise, the interest and principal will go to the previous holder because the company will pay to the one who is registered. Such debentures are transferable in the same way as shares. The transfer of debentures in the case requires the execution of a regular transfer deed.
(b) Bearer Debentures
These are the debentures that are not recorded in the register of the company. The unregistered commonly known as bearer debenture can be transferred by mere delivery to the new holder. Such debentures are transferable merely by delivery. Bearer debentures are similar to share warrants in that they too are negotiable instruments, transferable by delivery. They are considered as good as currency notes due to their easy transferability. Holder of bearer debentures is entitled to get the interest. The interest and principal are paid to the person who produces the coupons, which are attached to the debenture certificate. and the certificate respectively. The interest on bearer debentures is paid by means of attached coupons. On maturity, the principal sum is paid to the bearers. The company keeps no record of such debentures holders.
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