What is a debenture?

Definition of a debenture

A debenture is a way that larger, public limited companies might borrow money at a fixed rate of interest.

The company borrows money from the lender, who's then called a "debenture holder". The company issues a note to the debenture holder promising to repay them their capital, plus a fixed rate of interest, by a certain date.

The interest that the company pays to its debenture holders is one of the company's day-to-day running costs and will show as such, reducing the company's profit in the profit and loss account.

The amount of money that a company owes to debenture holders will be a capital account on its balance sheet.

Debentures can be bought and sold on the open market, just like shares in public companies. Unlike shareholders, debenture holders can't vote at companies' general meetings.

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