Debenture Add Alternative Choice For Free

In December 2019, the National Company Law Appellate Tribunal (NCLAT) in Joint Commissioner of Income Tax v. Reliance Jio Infocomm Ltd. & Ors., while approving a demerger under s. 230-232 of the Companies Act, 2013, allowed the conversion of preference shares of a company into debt during the scheme of arrangement.

What is a Debenture? A debenture is a bond issued with no collateral. Instead, investors rely upon the general creditworthiness and reputation of the issuing entity to obtain a return of their investment plus interest income.Examples of debentures are Treasury bonds and Treasury bills.

Preference shareholders are the partial owners of the company whereas debenture holders are creditors of the company.Returns on preference shares are paid in terms of dividend, on the other hand, in case of debentures it is paid in the form of interest.

You can give ordinary shares or preference shares to investors. Each share gives different rights to investors. Typically, ordinary shares are the common type of share issued to founders and employees, while preference shares are issued shares to investors wanting to secure their return.

A debenture is an instrument used by a lender, such as a bank, when providing capital to companies and individuals. It enables the lender to secure loan repayments against the borrower's assets even if they default on the payment. A debenture can grant a fixed charge or a floating charge.

A copy of special resolution is filed with the Registrar of companies within 30 days of its passing. A letter of option is sent to debenture holders and one copy of the same is filed with SEBI. The secretary then verifies the consent sent by debenture holders for conversion. Debenture is converted into equity shares.

Equity Shares are the shares that carry voting rights and the rate of dividend also fluctuate every year as it depends on the amount of profit available to the company. On the other hand, Preference Shares are the shares that do not carry voting rights in the company as well as the amount of dividend is also fixed.