Difference Between Shares And Debentures

Distinguish between shares and debentures : Learn the difference between shares and debentures scroll down and read this article.

 

 

Shares –

Share capital of a company dividend into units of small denominations are called as shares.

Debentures –

A debentures is an acknowledgement of debit issued by the company having a fixed denominator repayable after expiry of certain period, on which the company pays interest at fixed % annually.

Difference Between Shares And Debentures

Shares :

 

• It is the owned capital of the company.
• The holders are called as shareholders. They are the owners of company.
• As the shareholders are owners of company, they have a voting rights. They elect their representatives.
• The shareholders, being the owners of company can exercise control through the hands of Board of directors.
• The shareholders get a part of companies profits as Dividend.
• The profits of the company are distributed among shareholders as a dividend. It means the dividend is an appropriation of profits, among the owners.
• Dividends are paid out of profits only. It sufficient profits are not available, the dividends are not paid.
• The rate of dividend depends upon profitability of company, in the year of huge profits, the rate of dividend are is higher and vice versa for equity shareholders. However the preference shareholders get a fixed rate of dividend. But no dividend in the year of loss.
• The shareholders are the owners of company and so their amounts are not refunded until liquidation of company, except the amount payable to redeemable preference shareholders.
• In the event of liquidation, being the owners of company, the claims of shareholders are paid after the payment of all third party liabilities.
• The shareholders are the owners of company and so there is no question of any security of any asset for their claims.

Distinguish between shares and debentures

Debentures :

 

• It is a loan capital of the company.
• The holders are called as Debenture holders, They are the creditor of company.
• As the debenture holders are creditors, they do not have voting rights.
• The debenture holders can not interfere in the management of company.
• The debenture holders receive an interest on their debentures.
• The interest on debentures is a compulsory charge against the profits of the company. It is an expenditure. It is not an appropriation of profits.
• The payment of interest on debentures is compulsory. It means even in the year of loss also, payment of interest is compulsory.
• The debenture holders get an interest at fixed % every year.
• The debentures are the loan for a certain period of time. Therefore the amount of debentures must be refunded on expiry of fixed term.
• In the event of liquidation the claims of debenture holders are paid before any payment to shareholders, as the debenture holders are creditors of the company. It means they have priority over shareholders.
• The debenture holders may have either security of a specific asset like building or they may have a floating charge on all assets. So debentures are always shown as secured loan in balance sheet of company. This is the difference / distinguish between shares and debentures