Dividends

The profits of a company when distributed among its members are called ‘dividends’.

Section 2(35) of the Companies Act, 2013 defines the term ‘dividend’ as “dividend includes
any interim dividend”.

The Act allows dividends to be paid out of the following three sources:

● Profits of the company for the year for which dividends are to be paid
● Undistributed profits of the previous financial years
● Money provided by the Central or a State Govt. fo the payment of dividends in
pursuance of a guarantee by the Govt. concerned. (S.123)
Difference between an interim dividend and a final dividend

While a final dividend is a liability for the company and can be enforced once it is declared
by members of the general meeting, a declaration of an interim dividend by the board does
not create a liability and can be cancelled at any time before the interim dividend is
actually paid out. Even if a portion of the interim dividend has been deposited into a
separate bank account, the cancellation can still be performed. The board has the authority
to declare an additional interim dividend, and the interim dividend is not subject to the
approval of the members at the general meeting.

However, the Department of Company Affairs issued a position regarding interim dividends,
stating that the general meeting has the authority to approve dividends, and the board can
pay interim dividends if authorised by the articles of association, subject to the company
regularising interim dividends at the general meeting. However, these are not legally binding.
 Debentures
A debenture is a kind of document acknowledging the money borrowed containing the terms and conditions
of the loan, payment of interest, redemption of the loan, the security offered (if any) by the company.

As per Section 2(30) of Companies Act, 2013 “debenture” includes debenture stock, bonds, or any other
instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or
not;

Provided that (a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and

(b) such other instrument, as may be prescribed by the Central Government in consultation with the
Reserve Bank of India, issued by a company, shall not be treated as debenture;]

Therefore, debentures are a type of bond or loan which a company takes against security or in any other
form.A person holding debenture or debentures is called a debenture holder. He is the creditor of the company.
Section 71 of the Companies Act, 2013 and Rule 18 of the Companies (Share Capital and
Debentures) Rules, 2014

(1) A company may issue debenture with an option to convert such debentures into shares , either
wholly or partly at the time of redemption:

(2) No company shall issue any debentures carrying any voting rights .

(4) the company shall create a debenture redemption reserve account out of the profits of the
company available for payment of dividend and the amount credited to such account shall not be
utilised by the company except for the redemption of debentures.
(5) No company shall issue a prospectus or make an offer or invitation to the public or to its
members exceeding 500 for the subscription of its debentures, unless the company has, before such
issue or offer, appointed one or more debenture trustees and the conditions governing the
appointment of such trustees shall be such as may be prescribed.

(6) A debenture trustee shall take steps to protect the interests of the debenture-holders and redress
their grievances in accordance with such rules as may be prescribed.
 Nature of Debentures

Debentures for cash

Debentures are usually issued for raising funds for the company. They are mainly issued for cash. The
Debentures can be issued either at par, at discount, or at a premium
Debentures as collateral security
Collateral security is additional security along with the primary security when a company obtains a
loan or overdrafts facility from a bank or any other financial institution. Debentures issued as such a
collateral liability are a contingent liability for the company, Only when the company defaults on such a
loan plus interest will this liability arise.
Debentures issued as consideration other than cash
This is another type of issue of debentures. Sometimes a company requires some assets or types of
machinery, plants, equipment that are huge in cost. The company need not have money at that
particular time for the payment
So, instead of making payment in cash, the Company issues debentures to the vendor against such
purchase with the terms of payment of the consideration other than cash.
 Different Types of Debentures

Unlike shareholders, the debenture holders are the creditor of the company do not hold any voting rights. The debentures are of
the following types:

Based on Security

Secured Debentures

In these kind of debentures a charge is being established on the properties or assets of the enterprise for any payment. The
charge might be either floating or fixed. The fixed charge is established against those assets which come under the enterprise’s
possession for the purpose to use in activities not meant for sale whereas floating charge comprises all assets excluding those
accredited to the secured creditors. A fixed charge is established on a particular asset whereas a floating charge is on the general
assets of the enterprise.

Unsecured Debentures

This type of debentures does not have a particular charge on the assets of the enterprise. However, a floating charge may be
established on these debentures by default. Usually, these types of debentures are not circulated.
Types of Debentures based on Tenure

Redeemable Debentures

These debentures are those debentures that are due on the cessation of the time frame either in a lump-
sum or in installments during the lifetime of the enterprise.

Irredeemable Debentures

These debentures are also called Perpetual Debentures as the company doesn’t give any attempt for the
repayment of money acquired or borrowed by circulating such debentures. These debentures are repayable
on the closing up of an enterprise or the expiry (cessation) of a long period.
Types of Debentures based Convertibility

Convertible Debentures

Debentures that are changeable to equity shares or in any other security either at the choice of the
enterprise or the debenture holders are called convertible debentures. These debentures are either entirely
convertible or partly changeable.

Non-Convertible Debentures

The debentures which can’t be changed into shares or in other securities are called Non-Convertible
Debentures. Most debentures circulated by enterprises fall in this class.
Types of Debentures based Registration

Registered Debentures

These debentures are such debentures within which all details comprising addresses, names, and
particulars of holding of the debenture holders are filed in a register kept by the enterprise. Such debentures
can be moved only by performing a normal transfer deed.

Bearer Debentures

These debentures are debentures that can be transferred by way of delivery and the company does not
keep any record of the debenture holders Interest on debentures is paid to a person who produces the
interest coupon attached to such debentures.