Question

Distinguish between the following:

Shares and Debentures

Answer 1

	Shares	Debentures
1. Meaning	A share is a part of the share capital of a company. It is known as ownership securities.	A debenture is a certificate of loan taken by a company. They are also known as creditorship securities.
2. Nature	It is permanent capital. It is not repaid during the lifetime of the company.	It is a temporary capital. Generally, it is repaid after a specific period.
3. Status	Share capital is ownership capital. A shareholder is the owner of the company.	Debenture capital is borrowed/loan capital. A debenture holder is a creditor of the company.
4. Voting rights	Shareholders, being owners, enjoy voting rights. Shareholders participate in the management of the company.	The debenture holder, being the company’s creditor, does not have any Voting rights. He can not participate in the management of the company.
5. Return on investment	Shareholders are paid a dividend. Equity shareholders receive a dividend at a fluctuating rate, whereas preference shareholders receive a dividend at a fixed rate.	Debenture holders are paid interest at a fixed rate. Interest is paid even when the company has no profit.
6. Security	Share capital is unsecured capital. No Security is offered to the shareholder.	Debenture capital, being loan capital, is secured by creating a charge on its property.
7. Time of issue	Shares are issued in the initial stage of the company.	Debentures can be issued at a later stage when the company has securities to offer.
8. Position on liquidation	On liquidation of a company, shareholders rank last in the list of claimants.	Debenture holders, being creditors, rank prior to shareholders for repayment on liquidation of the company.
9. Suitability	Shares are suitable for long-term finance.	Debentures are suitable for medium-term finance.