What is Debentures and The Prospectus

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Debenture is a document issued by company containing an acknowledgement of indebtedness which it needs not to give although it usually gives a charge on the assets of a company.

Company debentures can also be referred to as loan stock. Usually debentures are a bond which is given in exchange for money rent to company.

Debenture can be offered to public only if the application form is accompanied by a prospectus. Company agrees to repay the principal to the tender by some future dates and in each year up to repayment it will pay a stated rate interest in return for the use of funds. Debenture is a creditor of company and the interest has to be paid to each class of share holder.

The Prospectus is a notice circular advertisement or other invitation offering to public for subscription or purchase any shares or debentures of a company.

This document shows the investor and sets out the advantages to accrue to the shareholder investment in the offering company.

It is in most cases illegal any form of application for share or debentures in a company unless it is accompanied by prospectus. 

The prospective shareholder should read the prospectus before applying for share and debentures, otherwise the company is not held liable for any lose by shareholder investment unless stated otherwise in the prospectus.

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