Company Finance

Debentures Overview

A debenture is a document that gives a company lender safeguards and powers in case of defaults. It includes information on repayment obligations, security provided by the company, events allowing enforcement, and debenture holder roles and powers.

• Debenture Types: Single Debenture, Series of Debentures, Debenture Stock
• Debenture Characteristics: Cost, Capital Growth, Return, Risk

Single Debenture

A single loan between the company and lender, shares cannot be sold at a discount, and the lender may be a bank providing long-term overdraft facility.

Series of Debentures

Consists of separate loans made on different dates, each part of an overall loan, with debentures having no share in capital growth but only right to repayment of principal sum plus interest.

Debenture Stock

Used by public companies, involves creating a loan fund where lenders invest money on the same terms. Trustees protect lender interests, and repayment plus interest is guaranteed even if the company is making losses.

Fixed and Floating Charges

Debentures can be secured or unsecured borrowings, with security usually in the form of a charge over a company asset. Providing security ensures repayment to the creditor in case of company liquidation.

Summary

Debentures offer different levels of security and returns to lenders compared to shareholders. They play a crucial role in company finance by providing a structured way for companies to borrow money and for lenders to secure their investments.

Introduction to Share Capital

To form a company, capital is needed, which can be raised through corporate borrowing (loan capital) or issuing shares (share capital).

• Shareholders receive dividends based on profit percentage and have rights in shareholding.
• Ordinary shareholders have the right to a return of capital in case of winding up with surplus assets.
• Shares represent investments in a company, allowing shareholders to attend meetings and influence company policy.

12.2 Types of Shares

A company can issue ordinary shares and preference shares, each with distinct characteristics.

• Ordinary Shares: Standard shares in a company, with owners known as shareholders. They are last to be paid in liquidation.
• Preference Shares: Carry more rights than ordinary shares, with fixed dividend payments and priority in liquidation.

12.2.1 Ordinary Shares

Ordinary shares are common and…