What is the difference between debentures, convertible debentures, and third party convertible debentures?
Debt is defined as an amount borrowed by one person (borrower) from another person (lender) in the form of a loan. Interest is to be paid at regular intervals on the amount borrowed. The principal is required to be repaid as specified in the agreement.
Answer and Explanation:
Debentures: Debentures is the financial instrument used by the companies to raise fund from the public. The person who invests in these securities is known as a debenture holder. The issuer of the debenture pays interest periodically to the debenture holder. Debenture holder does not enjoy the right to vote in the meetings as possessed by the shareholder.
Convertible debentures: Debentures that are converted and form into equity shares or preference shares after a period of time is known as convertible debentures. These are unsecured loans. When the convertible debenture is converted into shares, the investor becomes the owner and ceases to be the lender. He will get the rights that a shareholder enjoys. Example: He will get the right to vote in the meetings of the company.
Third-party convertible debentures: These are those debentures in which the debenture holder gets the right to subscribe to the equity of the third party at a preferential price in relation to the market price. The interest rate paid on these shares is less than those that are paid on debentures.
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from Business 100: Intro to BusinessChapter 23 / Lesson 4