Question

Write any two differences between Shares and Debentures.

Distinguish between the Shares and Debentures.

Answer 1

	Point of Distinction	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.	Status	A holder of shares is the owner of the company. Therefore, share capital is owned capital.	A holder of debenture is creditor of the company. Debenture capital is loan capital or borrowed capital.
3.	Nature	It is permanent capital. It is not repaid during the life time of the company.	It is temporary capital. Generally it is repaid after a specific period.
4.	Voting/Right	Shareholders being owners enjoy normal voting rights in general meeting. They participate in the management of the company.	Debentureholders being creditors, do not have any voting right. They can not participate in the management of the company.
5.	Return on Investment	Return on shares is called dividend. Equity shareholders receive divided at fluctuating rate where as preference shareholders receive divided at fixed rate.	Return on debenture is called interest. It is fixed at the time of issue. Interest is paid even when 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 Company’s property.
7.	Time of Issue	Shares are issued in the initial stages of the company formation.	Debentures are issued at a later stage, when the company has properties to offer as security.
8.	Suitability	Shares are suitable for long term finance.	Debentures are suitable for medium term finance.
9.	Types	Shares are classified into: a) Equity shares b) Preference	Debentures are classified as: a) Registered Debentures b) Bearer Debentures c) Secured Debentures d) Unsecured Debentures e) Redeemable Debentures f) Irredeemable Debentures g) Convertible Debentures h) Non-convertible Debentures
10.	Position on liquidation	On liquidation of a company, share holders rank last in the list of claimants.	Debentureholders being creditors, rank prior to shareholders for repayment on liquidation of company.