question_answer

Debentures are good from debenture holders point of view but not for business. Do you agree? Explain.

Answer:

Ans.     Debentures are similar to shares, however, debenture holders do not have voting rights on how the business is run.

Debentures have certain merits and demerits from business as well as debenture holders point of view. These are explained below:

Advantages to Debenture Holders

1. They receive annual interest/ benefits (VIP status or free passes) regardless of whether or not the business is making money.

Disadvantages to Debenture Holders

1. No say in how the business will run.

2. Greatly depends on the business' success to raise it's value.

Advantages to Business

1. Provides good long-term finance without losing control of the business.

Disadvantages to Business

1. Firm increases the amount of long-term liabilities raising the amount of interest payments to the lenders.