What does a debenture represent in a company?

A debenture is fundamentally understood as a written acknowledgment of a debt by the issuing company. This financial instrument represents a loan made by an investor to the company, where the company agrees to pay back the principal amount at a specified future date and often pays interest periodically. Being a type of debt instrument, debentures do not provide ownership in the company, distinguishing them from equity securities.

The nature of debentures allows investors to earn a fixed income through interest payments, which are usually at a specified rate. Unlike shares or other equity interests, debentures do not confer any rights to dividends or a claim on the company’s earnings beyond the agreed interest payments. Understanding this function helps clarify the financial relationships and responsibilities between the company and its debenture holders.