Question

Distinguish between: Shares and Debentures

Hint:

Simple rule: {S}hares = {S}takeholder (Owner) with variable dividends. {D}ebentures = {D}ebt (Lender) with fixed interest.

Answer 1

The fundamental difference is that shares represent ownership capital, making the shareholder an owner of the company, while debentures represent debt or borrowed capital, making the debenture holder a creditor of the company.

 

Basis of Distinction	Shares	Debentures
Meaning	A share is a unit of ownership capital in a company.	A debenture is a certificate of loan or debt taken by the company.
Status of Holder	A shareholder is an owner of the company.	A debenture holder is a creditor of the company.
Return	The return on shares is called a dividend, which is an appropriation of profits.	The return on debentures is called interest, which is a charge against profits and is paid regardless of profit.
Voting Rights	Equity shareholders have voting rights and can participate in the management of the company.	Debenture holders do not have any voting rights.
Security	Shares are generally unsecured.	Debentures are typically secured by a charge on the company's assets.
Repayment	Share capital is not repaid during the lifetime of the company, except in a buy-back or winding up.	Debentures are issued for a specific period, and the principal amount is repaid on maturity.