Question

Distinguish between a debenture and a share.

Answer 1

Basis of Difference	Shares	Debenture
1. Owner or Creditor	Shareholders are the owners since shares form a part of the owned capital.	Debenture holders are Creditors since debentures are a part of the loan.
2. Voting Rights	Shareholders have the voting rights.	Debenture holders do not have any voting rights.
3. Returns	Shareholders are entitled to returns in the form of dividends.	Debenture holders are entitled to returns in the form of interest.
4. Rate of Return	The rate of dividend is not fixed and varies from year to year.	The rate of interest is fixed and does not vary from year to year.
5. Obligations of Return	A dividend is the appropriation of profit. Dividend will not be paid if losses are incurred by the company	Interest is charged against profit; interest is payable even if there is no profit.
6. Repayment of Amount	The number of shares is not returned during the lifetime of the company	The amount of the debenture is returned according to the terms of issue.
7. Issue	The issue of shares at a discount needs adherence to the restrictions imposed by Section 79 of the Company Act.	There are no such restrictions for issuing debentures at a discount.
8. Conversion	Shares cannot be converted into debentures.	Debentures can be converted into shares.
9. Risk	Shares are riskier than debentures as these are unsecured.	If debentures are secured against assets, the risk involved is minimal.
10. Repayment Priority	Payment to the shareholders is made after settlement of all external liabilities, i.e. after debenture holders.	Payment to the debenture holders is made before the shareholders.