Question

Distinguish between shares and debentures.

Make a comparative evaluation of shares and debentures as sources of business finance.

Differentiate between Shares and Debentures.

Answer 1

S.No.	Point of Distinction	Shares	Debentures
1.	Nature	Part of capital, owned funds.	Debt or loan, borrowed funds.
2.	Status of holders	Owners	Creditors
3.	Right to return	Dividends cannot be claimed as a matter of right.	Interest can be claimed as a matter of right.
4.	Security	No charge for assets.	Generally, a charge on assets.
5.	Voting rights	Full voting rights.	No voting rights.
6.	Redemption	Not repayable during the lifetime of a company (except redeemable preference shares).	Generally repayable after a specified period.
7.	Order of repayment	After all claims of creditors are settled.	Prior to all types of shareholders.
8.	Frequency of return	Uncertain and fluctuating depending on profits.	Absolutely certain or fixed irrespective of profits.
9.	Risk to holders	The complete risk is borne by the holders.	Minimum risk in case of secured debentures.