Shares are the smallest unit of any company’s capital. They are basically small financial assets offered in the stock market in order to raise capital for a company. When you buy shares of a company, you become the owner of that company proportional to the value of shares. Also, you will get the benefits of voting, bonus shares, and dividends.
Types of Shares
Shares are basically of two types:
What are Debentures?
Debentures are the borrowed capital or debt instruments of the company. They are generally a long-term debt or unsecured loan that a company has taken from the public, which needs to be paid back with interest in due time.
If you invest in debentures, you will receive a timely interest payment on your investment irrespective of the company’s profit or loss.
Types of Debentures
Debentures can be classified based on a lot of factors, mentioning a few important ones:
Debentures vs Shares
The following are the major differences between Shares and Debentures:
The holder of shares is known as a shareholder while the holder of debentures is known as debenture holder.
Share is the capital of the company, but Debenture is the debt of the company.
The shares represent ownership of the shareholders in the company. On the other hand, debentures represent indebtedness of the company.
The income earned on shares is the dividend, but the income earned on debentures is interest.
The payment of dividend can be made only out of current profits of the business and not otherwise. Unlike the interest on debentures which has to be paid by the company to debenture holders, no matter company has earned profit or not.
Dividend is not a business expense and so is not allowed as deduction. On the contrary, interest on debentures is a expense and so allowed as a deduction.
In the event of winding up, debentures get priority of repayment over shares.
Shares cannot be converted as opposed to debentures are convertible.
There is no security charge created for payment of shares. Conversely, security charge is created for the payment of debentures.
A trust deed is not executed in case of shares whereas trust deed is executed when the debentures are issued to the public.
Unlike debenture holders, shareholders have voting rights.
Shares are issued at a discount subject to some legal compliance. Debentures can be issued at a discount without any legal compliance.