What characterizes a debenture as a form of loan capital?

A debenture is a type of debt instrument that a company issues to raise capital, and it is characterized primarily by being secured by the assets of the company. This means that if the company defaults on its loan obligations, debenture holders have a claim on the specified assets, providing them with a level of security that is typically not available with other forms of unsecured debt.

When debentures are secured, they often come with a lower interest rate compared to unsecured loans, as the risk to investors is mitigated by the collateral. This makes debentures a preferred option for companies looking to attract investment while providing some assurance to lenders that they will not lose their investment in case of default.

The other characteristics listed in the choices do not accurately define the nature of debentures. For instance, while ownership in a company is linked to equity instruments, debentures do not grant ownership; they are strictly a form of loan capital. Additionally, all debentures typically require interest payments, which is a fundamental feature of debt. Lastly, a debenture is formalized through a legal document outlining the terms, rather than being an informal agreement. Therefore, securing a debenture with assets distinctly defines its role in financing.