DiUlerence between SIhares amd Debentures

Shares
Basis of Difference
Shares are considered as a part| Debentures are
Debentures
I. Nature of Fund considered as a part
of owner fund of the company. of borrowed funds
the
2. Voting Rights Shareholders get full voting No voting rights. company.
rights in the company.
3. Issue of Discount Restrictions on issue of shares at No restriction on issue of
discount (i.e., maximum a rate at a discount.
at debentures
of discount is 10 per cent of the
nominal/face value.
4. Security No assets of the company are Company's assets
asse are mortgaged for
mortgaged as security against the raising funds from debentures.
issue of shares.
5. Status of Holders Owners. Creditors.
6. Risk to Holders Complete risk borne by holders. Debentures holders bear minimum
degree of risk.
7. Rate of Return Dividends are paid, when there Interest on debentures is paid at fixed
is adequate profit. The rate of|rate regulary.
dividend is not fixed. Dividends
are the regular source of income.
8. Priority of Refund Principal amount repayable after Payment is made to debenture holders
debenture holders. before shareholders.
9. Name of Return Shares get return in the form of Debentures get return in the form of
dividend. interest.
10. Effect on Borrowing Issue of equity shares increases Issue of debentures reduces the
Capacity the borrowing capacity of a borrowing capacity of a company.
company.
11. Convertibility Shares cannot be converted into Debentures can be converted nto
debentures. shares.
12. Repayment Shares are not redeemable A company can return its debentures
the
(paid back) during the life ofeven before the winding up of
the company (except in case of company.
redeemable preference shares)