Question
Shares and Debentures
| Points | Shares | Debentures |
| 1. Meaning | Share is the smallest unit in the total share capital of the company. It is known as ownership securities. | A debenture is an instrument evidencing debt under the seal of the Company. They are also known as creditor ship securities. |
| 2. Status | A holder of shares is the owner of the company. Hence, share capital is owned capital. | A holder of debenture is the creditor of the company. Hence, Debenture capital is loan capital or borrowed capital. |
| 3. Nature | It is permanent capital. It is not repaid during the lifetime of the company. | It is temporary capital. Generally, it is repaid after a specific period. |
| 4. Voting/Right | Shareholders being owners enjoy normal voting rights in general meetings and can participate in the management of the company. | Debenture holders being creditors, do not have any voting right and can not participate in the management of the company. |
| 5. Return on Investment | Return on shares is called a dividend. Equity shareholders receive dividends at a fluctuating rate whereas preference shareholders receive dividends at a fixed rate. | Return on debenture is called interest. It is fixed at the time of issue. Interest is paid even when a company has no profit. |
| 6. Security | Share capital is unsecured capital. No security is offered to the shareholder. | Debenture capital being loan capital is secured by creating a charge on Company’s property. |
| 7. Time of Issue | Shares are issued in the initial stages of the company formation. | Debentures are issued at a later stage when the company has properties to offer as security. |
| 8. Suitability | Shares are suitable for long-term finance. | Debentures are suitable for medium-term finance. |
| 9. Types | Shares are classified into:• Equity shares• Preference | A debenture is classified as:• Registered Debentures• Bearer Debentures• Secured Debentures• Unsecured Debentures• Redeemable Debentures• Irredeemable Debentures• Convertible Debentures• Non-Convertible Debentures |
| 10. Position on liquidation | On liquidation of a company, shareholders rank last in the list of claimants. | Debenture holders being creditors, rank prior to shareholders for repayment on liquidation of the company. |
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