Debenture Law & Legal Definition
A debenture is a debt instrument evidencing the holder's 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 company's liquidation, it is treated as an equity and payment to investors will be behind the priority of other creditors.
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