SHARES AND DEBENTURES

SHARES AND DEBENTURES

In financial markets, a share is a unit of account for various investments. It often means the stock of a corporation, but is also used for collective investments such as mutual funds, limited partnership, and real estate investment trusts.The income received from shares is known as a dividend. A shareholder, also known as a stockholder, is a person who owns shares of a certain company or organization.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.It is included in the liabilities of the company.

The main points of difference between the two are :

  1. The person holding the shares are known as shareholders whereas person holding debentures is known as a debenture holder.
  2. The debenture holder is the creditor of the company who doesnot take part in the management of the company,whereas,shareholders are the owners of the company. They have full right in the decision making.
  3. Debenture holders will get interest on the debentures irrespective of the fact whether the firm has earned profits or losses.It is a compulsory payment, whereas,shareholders get dividend only out of the profits earned by the company.
  4. Shares cannot be converted into debentures,whereas, debentures can be converted into shares.
  5. Debenture holders will be given priority of payment in the process of liquidation as compared to shareholders.
  6.  Debentures can be issued on discount without restrictions ,whereas,shares have to follow some legal formalities to do so.
  7. There can be mortgage debentures,i.e, assets of the company can be mortgaged in favor of debenture holders. a company cannot issue mortgage shares.Assets of the company cannot be issued in the favor of shareholders.

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