In company law, which of the following best defines a 'debenture'?

Answer options:

A type of preference share.

A document issued by a company containing an acknowledgment of its indebtedness.

A dividend payment made to shareholders.

A statutory demand for unpaid tax.

How to approach this question

Recognize that a debenture relates to debt (loan capital), not equity (shares).

Full Answer

B.A document issued by a company containing an acknowledgment of its indebtedness.✓ Correct

A debenture is essentially a document that acknowledges a debt owed by the company. It is the primary way companies raise loan capital. It may or may not be secured by a charge over the company's assets.

Common mistakes

Assuming a debenture is a type of share. Debenture holders are creditors, not members (shareholders).

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 2

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