Question

What are the advantages of debentures?

Answer 1

The advantages of debentures are:

• The company’s control remains in the hands of its shareholders, even the profit-sharing ratio remains the same.
• Debentures holders are paid off first, as it is treated as a liability to the business.
• The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending.
• Valuable financial protection and reassurances are provided for directors as regards their personal funds.
• Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.