Definitions [3]
Definition: Joint Stock Company
- “A Joint Stock Company is a voluntary association of individuals for profit having capital divided into transferable Shares, the ownership of which is the condition on membership.” – Prof. L. H. Haney.
- “A Company is a person, artificial, invisible, intangible, and existing only in the eyes of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.” – Chief Justice Marshal
- According to The Companies Act 2013, Section 2 (20), the term “Company” means “a Company incorporated under the Companies Act 2013 or any previous Company law.”
Definition: Share
As per Section 2(84) of the Companies Act 2013, “Share is the share in the capital of a company and includes stock as well.”
Definition: Debenture
- According to section 2(30) of the Companies Act, 2013, " Debenture includes debenture stock, bonds and any other securities of a Company, whether constituting a charge on the assets of the Company or not."
- “A Debenture is a document given by a company as evidence of a debt to the holder, usually arising out of a loan and most commonly secured by a charge." -Topham
- According to Evelyn Thomas, "a debenture is a document under the company's seal which provides for the payment of a principal sum and interest thereon at regular intervals, which is usually secured by a fixed or floating change on the company's property or undertaking and which acknowledges a loan to the company".
Key Points
Key Points: Joint Stock Company
- Meaning: A Joint Stock Company is a business organisation where ownership is divided into transferable shares held by shareholders.
- Origin: It emerged during the Industrial Revolution to overcome the limitations of partnerships, such as unlimited liability and limited capital, by raising funds from the public.
- Legal Status: A Joint Stock Company is an artificial legal person with a separate legal identity and perpetual succession, created under company law.
- Merits: It provides benefits like large capital, limited liability, expert management, public confidence, and better scope for expansion.
- Types: Companies can be Chartered, Statutory, or Registered, and further classified as Public, Private, Limited, or Unlimited.
Key Points: Debentures
- Debenture: A written promise by a company to repay a loan with interest.
- Legal View: Includes all debt instruments, as per the Companies Act, 2013.
- Key Features: Fixed interest, secured by assets, issued under seal, max 10-year term (30 for infrastructure).
- Debentureholders: They are lenders, not owners of the company.
- Bond vs Debenture: Bonds may have no fixed interest; debentures always do.
Difference Between Debenture and Share
| Basis | Debenture | Share |
|---|---|---|
| Ownership | Debentureholder is a lender. | Shareholder is part-owner of the company. |
| Capital vs Loan | It is a loan taken by the company. | It is a part of the company’s capital. |
| Return | Debentureholder gets interest. | Shareholder gets a dividend. |
| Interest/Dividend Rate | Fixed rate of interest. | Dividend is variable and depends on profits. |
| Redemption | Compulsory repayment on maturity. | Voluntary buy-back by the company. |
| Issue at Discount | Can be issued at a discount. | Cannot be issued at discount (except sweat equity). |
| Security | Usually secured by company assets (less risk). | Always unsecured (more risk). |
| Priority in Repayment | Paid before share capital during liquidation. | Paid after debentures during liquidation. |
| Convertibility | Can be converted into shares (if convertible). | Cannot be converted into debentures. |
| Purchase/Buy-back | Company can repurchase from the market. | Buy-back allowed with certain conditions. |
| Voting Rights | No voting rights in company meetings. | Shareholders have voting rights. |
