Any document by which a company creates or acknowledges a debt may be called a debenture,

although this term is rarely applied to short term debts, indeed, the term tends to be used in
business circles only to secured loans.

First, sums owed by the company as a debt, such as a loan by an individual or institution, most
probably the company’s overdraft, and, secondly, marketable loans. Marketable loans are, in
essence, potential debts which may be issued (sold) to investors. Loan capital may be listed (that is,
sold through a stock market) or unlisted – the latter is becoming more common.

Marketable loans are more relevant for larger companies, whereas the overdraft is a fact of life for
companies large and small.

A person lending money to a company has such rights as are given by the contract creating the loan.
Typically, the contract will include provisions for repayment of the loan, the payment of interest (if
any) and the ability (generally none) of the creditor to attend company meetings or otherwise
influence company policy. A loan of this type may also be called a debenture. A debenture holder
should be sent a copy of the company’s annual accounts and reports submitted to members6 and is
entitled to ask for the company’s accounts.7 A debenture is transferable (unless the contract
creating it prohibits transfer). A transfer may be by simple delivery from the current holder to the
new holder (a bearer debenture) or by delivery and the completion of a transfer document.

In the business world, an unsecured loan is likely to be called an unsecured loan note rather than a
debenture.

Where the contract of loan, or a linked contract, provides that, if the company fails to meet its
obligations, the lender can have recourse to the company’s assets and can obtain the sums
outstanding by selling the assets or receiving income generated by those assets, the lender has a
direct security. The assets of the company covered by this security are said to be charged and the
lender may be called a chargee; the person (the company) whose assets are secured can be called a
surety or chargor.

The contract can only be enforced in accordance with its terms. Thus, the security (or charge) can
only be enforced if the obligation it secures has not been met.