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 subscrip-tion 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.

Types of debenture:

1. On point of view of record:

(a) Registered debentures: These debentures are registered with the company and the amount is payable only to those debentures holders whose names are registered with the company.

(b) Bearer debentures: These debentures are not registered with the company, these are transferable merely by delivery and the debenture holder will get the interest.

2. On the basis of security:

(a) Secured or mortgaged debentures: These are secured by a charge on the assets of a company. The principle amount and the unpaid interest could be recovered by the holder out of the assets mortgaged by the company.

(b) Unsecured debentures: They do not get any security in reference to principal amount or unpaid interest. They are simple debentures.

3. On the basis of Redemption:

(a) Redeemable Debentures: They are issued for a fixed period and the principle amount is paid off only at the expiry of that period or at the maturity.

(b) Non-redeemable debentures: They are matured only after the liquidation or closing down or winding up of the company.

4. On the basis of convertibility:

(a) Convertible debentures: These can be converted to shares after the expiry of the period i.e; on their maturity.

(b) Non-Convertible debentures: These cannot be converted to shares on their maturity.

5. On the basis of priority:

(a) First debentures: These are redeemed before other debentures.

(b) Second debentures: These are redeemed after the redemption of the first debenture.