Which statement is NOT true of holders of a debenture?

• A. They hold an ownership interest in the company.
• B. They are creditors of the company.
• C. They are entitled to interest payments.
• D. They hold a security.

Answer: (A)

Debentures are a form of debt instrument, so buying one means lending money to the company rather than owning part of it. Because of that, debenture holders are creditors, not owners, and they don’t have equity rights or voting rights in the company. They are entitled to periodic interest payments and to have their principal repaid at maturity. Whether they hold a security depends on whether the debenture is secured or unsecured—secured debentures are backed by collateral, while unsecured ones rely on the company’s creditworthiness. So the statement that debenture holders hold an ownership interest is not true; the other points describe typical characteristics of debentures.