A debenture is a debt instrument evidencing the holders right to receive interest and principal installments from the named obligor. The term applies to all forms of unsecured, long-term debt evidenced by a certificate of debt. When investors loan funds to a business, the company may issue a debenture so that repayment of the debt is guaranteed by the overall capital value of the company under certain specific terms.
A debenture generally is considered more secure than shares of stock or general bonds. A denture is a bond backed by the general credit of the issuer rather than any specific collateral. The issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal.
Debenture stock is stock that pays fixed payments at scheduled intervals. A debenture stock more akin to a preferred stock than a debenture. In the case of a companys liquidation, it is treated as an equity and payment to investors will be behind the priority of other creditors.
The following is an example of a federal statute defining the term Debentures:
According to 13 CFR 108.50 _Title 13 - Business Credit And Assistance; Chapter I - Small Business Administration; Part 108 - New Markets Venture Capital _“NMVC”_ Program; Subpart B - Definition Of Terms Used In This Part 108_, Debentures means “debt obligations issued by NMVC companies pursuant to section 355 of the Act and held or guaranteed by SBA.”