UPSC Prelims 2003 Q46: Indian Economy – Financial Markets & Capital Markets
Debenture holders of a company are its
- (a) Shareholders
- (b) Creditors
- (c) Debtors
- (d) Directors
Answer: (b) Creditors
Explanation
Debenture holders of a company
| Holder | Status |
|---|---|
| Creditors | Yes — debentures are a loan to the company |
| Shareholders | Owners of the company |
| Debtors | Those who owe money to the company |
| Directors | Managers of the company |
Debenture holders are the creditors of a company, since a debenture is a long-term loan carrying fixed interest.
Answer: (b) Creditors.
Why each option is right or wrong
- (a) Incorrect. Shareholders own the company.
- (b) CORRECT. Debenture holders are creditors.
- (c) Incorrect. Debtors owe money to the company.
- (d) Incorrect. Directors manage the company.
Key point
Share = ownership; debenture = loan.
Remember
Debenture holders are creditors of the company.
Common mistakes
- Treating debenture holders as owners.
- Mixing up debtors with creditors of a firm.
- Forgetting that interest is paid before any dividends.
Exam tip
Creditors are paid before shareholders on liquidation.
Sources
- Companies Act, 1956, Section 2(12) (definition of "debenture")
- Encyclopaedia Britannica — debenture