SPCC 5 Marks Each

Shares and Debentures both are sources of funds for the company. There are certain difference between both which are as under:

No.	Points	Share	Debenture
1	Meaning	A joint stock company divides its capital in small parts. Each part is called a share.	When a joint stock company borrows money from public is called debenture.
2	Capital	It is Owner’s capital.	It is borrowed funds.
3	Return	The company pays divident on a share from profit.	Company pays interest on the debenture amount.
4	Rate of Return	The rate of dividend is unspecified.	The rate of interest is specified. It is payable whether there is any profit or not.
5	Ownership	Shareholders are the owners of the company.	Debenture holders are the creditors of a company.
6	Risk	The risk is higher in shares. Shareholders have voting rights.	The risk is less in debentures. Debenture holders have no voting rights.
7	Right of vote	The risk is higher in shares. Shareholders have voting rights.	The risk is less in debentures. Debenture holders have no voting rights.
8	Stamp duty	The stamp duty on transfer of shares is payable at lesser rate.	The stamp duty on transfer of debenture is payable on a higher rate.
9	Redemption	The shareholders can not get their money back as long as the . company is in existence. At the time of liquidation, they get their money at the end.	The debenture can be redeemed as per its type. They have the first right to receive their money in case of liquidation.
10	Charge on Assets	There are no changes on assets.	Issue of debenture creates changes on assets of the Company.
11	Payment out of Capital	Dividend on Shares can not be paid out of capital of the company.	Interest on debentures can be paid out of capital as per the provisions.
12	Control	Share holders have control over the administration of the company.	Debenture holders have no control over the administration of the company. However they can appoint debenture trustees to safeguard their interest.
13	Demand for Liquidation	Shareholders can not demand a liquidation of the company.	Debenture holders can demand a. liquidation of the company.

1. Introduction : The company collects finance by issuing shares and debentures. Debenture is a poputlar source of finance for long term requirement of the company. To issue debentures company has to follow the predetermind process. There is a special provision in Indian companies Act to issue debentures. If any provision is not followed or any mistake is made than company can be fined or punished. It is necessary to ensure that there should be no risk or danger to the interest of debenture holders. 2. The procedure for the issue of debenture is as under : (1) Resolution by Board of Directors: First of all, the provisions of debentures of the Articles of the company are studied, then a resolution is passed in the meeting of the board of directors to issue debentures. At the meeting a decision is taken regarding the amount of total issue, rate of interest, payment of interest, number of debenture certificates and conditions. (2) Resolution by General Meeting of the Company: The sanction for issue of debentures is obtained in the general meeting of the company. If due to issue of debentures the debt of company exceeds free reserves of the company or if the debentures are to be issued for an amount exceeding free reserve fund then the approval of members is obtained by convening the general meeting of members. (3) Permission of SEBI: It is necessary to ensure that the provisions of the companies Act and guidlines of SEBI are complied with and permission of SEBI is obtained. (4) To issue prospectus : Public limited companies invite general public to subscribe to the debenture by issuing prospectus which describes contents of debentures. Investors study it and take decision to purchase the debenture. (5) Appointment of Trustee for Debentures : In order to safeguard interests of debenture holders a trust deed, “Debenture Trust Deed”. is prepared under the Trust Act. The trustees for debentures are appointed in the company. (6) Agreement with underwriters: If the Board of Directors decides to enter into an agreement with underwriters for the issue of debentures, it is done at this stage. The conditions are determined for both parties. (7) To open an account with a Scheduled bank: The company has to open an account with scheduled bank to receive applications and money for debenture. (8) Registration in Stock Exchange: If it is so stated in prospectus, the company has to apply to a recognized stock exchange for the listing of debenture issue so that the debentures can be traded in the market. If the stock exchange refuses to register or cancels the registration of debenture issue, the company has to pay back the money to the debenture holders. (9) To Prepare Allotment Register for Debentures: After the closure of subscription, specified in the prospectus, the company secretary has to prepare a register on basis of application’ received. If decision regarding allotment of debentures is taken in the meeting of the Board of Directors. After deciding the allotment of debentures the process of remittance of debenture certificate is commenced. (10) Debenture Certificates: If the subscription to the debentures is to be made through part payment of debentures money, then after receiving the full amount towards the debenture alloted the company secretary prepares debenture certificates and in accordance with the provisions of the companies Act dispatches the certificate to debenture holders.

1. introduction : Joint stock company’s keep on needing finance for a long period of time. Company can satisfy the need of finance in two ways. (1) Owner’s funds (2) Borrowers funds. When the company issues equity shares and raises funds it is known as owners funds, but when company issues Debentures and Bonds it is said to be borrowed funds. By issuing debentures company can raise funds for a long period of time. It creates floating charge on assets. Debenture is debt of the company. Company has to pay interest on it regularly. 2. What is the debenture : The word Debenture has been originated from word Debere, which means Debt. Thus, Debenture is a debt acknowledging document. As per Sir Francisn Parmer, “Debenture is a type of document issued under the common seal of the company acknowledging the debt.” Debenture is a document containing an acknowledgement of indebtedness; issued by the company under its common seal and giving an undertaking to repay the debt, at a specified rate or at the option of the company and in the meantime to pay interest, thereon at a fixed and at interval stated in debentures. - From the meaning, following Points can be understood: (1) issued under the common seal of the company. (2) acknowledging the debt of a specified amount. (3) in which till the principle amount is repaid. (4) interest at specified rate is payable under the contract (5) a charge is created on the assets of the company. Thus, joint stock companies established under the companies Act issue debentures for long term capital requirement. The debenture can be reedemed after a fixed period. A relationship of debtor and creditor is created between the company and the debenture holder. The debenture holder does not get a right to vote in the company and he cannot participate in the management of the company, but they can appoint debenture trustees to safeguard their interest. When company goes into liquidation the debenture holders are paid their money on priority basis by selling the assets of the company. 3. Types of Debentures : For the convinience of public, the company management issues different types of Debentures. (1) Mortgage Debenture (2) Fully Convetible Debenture (FCD) (3) Partly Covertible Debenture (PCD) (4) Non Convertible debenture (NCD) (1) Mortgage Debenture : The company by issuing such debentures, create a charge on the assets which can be fixed charge or floating charge. The company has to obtain the approval of the trustee of debenture holders, before taking any decision regarding these assets. At the time of liquidation the debenture holders have the first right on the assets of the company. (2) Fully Convertible Debentures (FCD) : In accordance with the agreement with debenture holders, on completion on the specified time period these debentures are converted into equity shares. The company gives two options to holders (1) To redeem the debentures (2) To take equity shares of the same amount. If the debenture holder opts for fully convertible debentures then his rights as creditor come to an end and he gets rights as equity share holder. (3) Partly Convertible Debenture (PCD) : Here debentures are divided into two parts, where one part is fully convertible and the other part is non-convertible. Equity shares are issued against the convertible part while the non convertible part is reedemed. (4) Non Convertible Debenture (NCD) : The debenture are not converted into equity shares. The holders are paid their money back by redemption at the end of the specified time period.