Which of the following statement is true of a debenture?

A. its holders receive interest
B. it forms part of a company’s authorized capital
C. its owners are co-owners of the company
D. its owners control the company

Correct Answer: Option A

A. its holders receive interest

Explanation

In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term “debenture” originally referred to a document that either creates a debt or acknowledges it.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.