Difference Between Shares and Debentures

Investment in shares and debentures has now taken a drastic position in the society.
People of every age, gender, religion, etc whether they are youngsters or elders, men
or women, Hindu or Muslim invest in various investments with the aim of earning
more and more money. Novice investors might not understand about these terms, So
here we have an article not only for beginners and existing investors, but for all the
people who have any doubts in understanding the two. Lets start the knowing
difference between Shares and Debentures.

Comparison Chart
BASIS OF

SHARES

COMPARISON

Meaning

DEBENTURES

The shares are the owned

The debentures are the borrowed fu

funds of the company.

of the company.

Shares represent the capital

Debt represents the debt of the

of the company.

company.

The holder of shares is

The holder of debentures is known

known as shareholder.

debenture holder.

Status of Holders

Owners

Creditors

Form of Return

Shareholders get the

Debenture holders get the interest.

What is it?

Holder

dividend.

BASIS OF

SHARES

COMPARISON

DEBENTURES

Security for payment

No

Yes

Voting Rights

The holders of shares have

The holders of debentures do not ha

voting rights.

any voting rights.

Shares can never be

Debentures can be converted into

converted into debentures.

shares.

Repayment in the event

Shares are repaid after the

Debentures get priority over shares

of winding up

payment of all the liabilities.

and so they are repaid before shares

Quantum

Dividend on shares is an

Interest on debentures is a charge

appropriation of profit.

against profit.

No trust deed is executed in

When the debentures are issued to

case of shares.

public, trust deed must be executed

Conversion

Trust Deed

Definition of Shares
Smallest division of the companys capital is known as shares. The shares are offered
for sale in the open market, i.e. stock market to raise capital for the company. The
rate on which the shares are offered is known as share price. It represents the portion
of ownership of the shareholder in the company. The shareholders are entitled to the
dividend (if any) declared by the company on the shares.

The shares are generally movable i.e. transferable and consist of a distinctive
number. The shares are broadly divided into two major categories:

Equity Shares: The shares which carry voting rights on which the rate of
dividend is not fixed. They are irredeemable in nature. In the event of winding
up of the company equity, shares are repaid after the payment of all the
liabilities.

Preference Shares: The shares which do not carry voting rights, but the
rate of dividend is fixed. They are redeemable in nature. In the event of
winding up of the company preference shares are repaid before equity shares.

Definition of Debentures
A long term debt instrument issued by the company under its common seal, to the
debenture holder showing the indebtedness of the company. The capital raised by the
company is the borrowed capital, that is why the debenture holders are the creditors
of the company. The debentures can be redeemable or irredeemable in nature. They
are freely transferable. The return on debentures is in the form of interest at a fixed
rate.
Debentures are generally secured by a charge on assets, although unsecured
debentures can also be issued. They do not carry voting rights. The debentures are of
following types:

Secured Debentures

Unsecured Debentures

Convertible Debentures

Non-convertible Debentures

Registered Debentures

Bearer Debentures