Sage-Tips

Can a Private Company issue debentures?

(b) Under Section 3(1)(d) of the Act, a Private Company is prohibited from accepting Deposit from persons other than its Directors, Members and their relatives. (c) Hence, the Private Company must issue Debentures only as a Secured Debenture.

Who can issue unsecured debentures?

Corporations and governments can issue debentures. Governments typically issue long-term bonds—those with maturities of longer than 10 years. Considered low-risk investments, these government bonds have the backing of the government issuer. Corporations also use debentures as long-term loans.

Can Private Company issue unsecured optionally convertible debentures?

Issuance of unsecured optionally convertible debentures by a Private Company. It has to comply with Section 71 of the Companies Act read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014.

Can a company issue unsecured NCD?

An NCD can either be secured or unsecured. A secured NCD is backed by the issuing company’s assets. This means that the company has to fulfil its debt obligation whatsoever. However, that’s not the case for unsecured NCDs.

What is an unsecured debenture?

Unsecured debentures are debentures that are not supported by a collateral security. No specific assets will be set aside against unsecured debentures. It is basically a loan with out any protection. They are backed only by the general credit worthiness of the issuer.

Which Company Cannot issue debentures to the public?

A Company cannot issue debentures to more than 500 people without appointing a debenture trustee, whose duty would be to protect the interest of Debenture Holders and redress their grievances. On issue of debenture, a Company shall create a Debenture Redemption Reserve (DRR).

Can private limited Company issue convertible debentures?

Privately held companies do not fall under SEC regulation since they do not issue publicly traded securities. As a result, private companies cannot issue convertible bonds that are tradeable and which convert into common stock.

What is private placement of debentures?

Private placement implies any offer or invitation to subscribe or issue securities by a corporation (other than a public offer) to a certain category of persons (“identified persons”) through the private placement offer-cum application letter.

Is debenture redemption reserve required for unsecured debentures?

This instrument is considered unsecured because it is not backed by an asset, lien, or any other form of collateral. Therefore, to protect debenture holders from the risk of default by the issuing company, Section 117C of the Indian Companies Act of 1956 implemented the debenture redemption reserve (DRR) mandate.

Can non-convertible debentures be issued?

Non-convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures.

What is difference between secured and unsecured NCD?

Secured NCD: Secured NCDs are those that are backed by the company that is issuing the NCD. This means that the company has an obligation to repay the amount borrowed from investors. 2. Unsecured NCD: As the name suggests, unsecured NCDs are those that do not have the guarantee of the company repaying its dues.

Can a private company issue unsecured debentures to its shareholders?

A private company can issue unsecured Debenture to its shareholders/directors and their relatives, otherwise again the same will be regarded as “Deposit”

How many debentures can a company issue before issue prospectus?

(3) company shall appoint one or more debenture trustee before issue prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures and execute trust deed within sixty days from the allotment of the debentures to protect the interest debenture holder;

Can a convertible debenture be issued as a deposit?

Issue of unsecured Debenture (convertible or not) shall be regarded as “Deposit” as per Rule 2 (b) of The Companies (Acceptance of Deposits) Rules, 1975. A private Company can’t accept deposit pursuant to provisions of Section 3 (1) (iii) of the Companies Act, 1956 and as per restriction in the AOA.

What is debenture subscription agreement?

Our Company has entered into A debenture subscripttion agreement with a investor as per which the company shall issue debentures to the investor. The debetures shall have no underlying security.