Simple English definitions for legal terms
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A debenture is a type of long-term loan that corporations and governments use to fund major projects and expansions. It has a set interest rate, payback period, and regular interest payments like other bonds. If the issuing corporation goes bankrupt, debenture holders have a higher priority in getting paid than regular stockholders. However, the meaning and treatment of debentures can vary in different countries, so it's important to check local usage to understand its specific definition.
A debenture is a type of bond that is typically used by corporations and governments as a long-term funding option for major projects or expansions. Unlike secured bonds, debentures are unsecured, meaning they are not backed by specific assets.
Debentures have set interest rates, payback periods, and regular interest payments, just like other types of bonds. However, if the issuing corporation were to go bankrupt, holders of debentures rank higher in bankruptcy than regular stockholders in getting paid.
It's important to note that the meaning of debentures can vary depending on the country. For example, in the United Kingdom, debentures typically refer to some form of secured debt instrument. In Canada, a debenture is not necessarily tied to specific assets but is treated as a secured creditor in bankruptcy proceedings, receiving better treatment than in the United States.
Overall, debentures are a type of bond that can be used by corporations and governments to raise funds for long-term projects or expansions. They have set interest rates and payback periods, and if the issuing corporation were to go bankrupt, debenture holders would have a higher priority in getting paid than regular stockholders.
A corporation issues $10 million in debentures to fund a major expansion project. The debentures have a 10-year payback period and a 5% interest rate. The corporation makes regular interest payments to the debenture holders over the 10-year period. If the corporation were to go bankrupt during this time, the debenture holders would have a higher priority in getting paid than regular stockholders.