Give the difference between Shares and Debentures. - Vidyadip

Question

Give the difference between Shares and Debentures.

✓

Answer

The differences between shares and debentures are:

S. No.	Basis	Shares	Debentures
1.	Nature of Finance	Shares are a part of owner's fund.	Debentures are a part of debt fund.
2.	Nature and Rate of Return	Dividend is the return on shares. The rate of dividend is not fixed and is dependent on the profits of the company and the decision of the management.	Interest is the return on debentures. The rate of interest is fixed and is required to be paid even if the company incurs losses.
3.	Status of Holders	Shareholders are deemed to be the owners of the company.	Debenture holders are deemed to be the creditors of the company.
4.	Degree of Control	Shareholders can exercise reasonable degree of control on the affairs of the business by exercising their right to vote.	Debenture holders are in no position to control the affairs of the business as they do not have the right to vote.
5.	Security Offered	No security is required to be offered at the time of issue of shares.	Security is required to be offered, either by creating a charge on assets or by mortgaging the assets, at the time of issue of debentures.
6.	Level of Risk	Shareholders assume a high level of risk.	Risk is comparatively lower for debenture holders.
7.	Period of Redemption	Shares are not generally redeemable during the life of the company, except in case of redeemable preference shares.	Debenutures are generally redeemable during the life of the company,expect in case of perpetual debentures.
8.	Effect on Borrowing Capacity	Issue of shares does not affects the borrowing capacity of the company.	Issue of debentures affects the borrowing capacity of the company.

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