Shares
Smallest division of the company’s capital is known as shares.
The shares are offered for sale in the open market, i.e. stock market to raise
capital for the company. The rate on which the shares are offered is known
as share price. It represents the portion of ownership of the shareholder in
the company. The shareholders are entitled to the dividend (if any)
declared by the company on the shares.
The shares are generally movable i.e. transferable and consist
of a distinctive number. The shares are broadly divided into two major
categories:
- Equity Shares: The shares
which carry voting rights on which the rate of dividend is not fixed. They
are irredeemable in nature. In the event of winding up of the company
equity, shares are repaid after the payment of all the liabilities.
- Preference
Shares: The
shares which do not carry voting rights, but the rate of dividend is
fixed. They are redeemable in nature. In the event of winding up of
the company preference shares are repaid before equity shares.
Definition of Debentures
A long term debt instrument issued by the company under its
common seal, to the debenture holder showing the indebtedness of the company.
The capital raised by the company is the borrowed capital, that is why the
debenture holders are the creditors of the company. The debentures can be
redeemable or irredeemable in nature. They are freely transferable. The return
on debentures is in the form of interest at a fixed rate.
Debentures are generally secured by a charge on assets, although
unsecured debentures can also be issued. They do not carry voting rights. The
debentures are of following types:
- Secured
Debentures
- Unsecured Debentures
- Convertible
Debentures
- Non-convertible
Debentures
- Registered
Debentures
- Bearer
Debentures
The following are the
major differences between Shares and Debentures:
1. The
holder of shares is known as shareholder while the holder of debentures is
known as debenture holder.
2. Share
is the capital of the company but Debenture is the debt of the company.
3. The
shares represent ownership of the shareholders in the company. On the other
hand, debentures represent indebtedness of the company.
4. The
income earned on shares is dividend, but the income earned on debentures is
interest.
5. In the
event of winding up debentures get priority of repayment over shares.
6. Shares
cannot be converted as opposed to debentures are convertible.
7. There
is no security charge created for payment of shares. Conversely, security
charge is created for the payment of debentures.
8. Trust
deed is not executed in case of shares whereas trust deed is executed when the
debentures are issued to public.
9. Unlike
debenture holders, shareholders have voting rights.
10. Shares
are issued at discount subject to some legal compliance. Debentures can be
issued at discount without any legal compliance.
- Both are
Financial Asset.
- Both can issued
to public.
- Source of
raising money for the company.
- They can be
issued at discount.
After so much of discussion between these two types of
securities, the difference is quite clear. Both have its advantages and
disadvantages.
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