Difference between Shares and Debentures

Meaning of Debentures :

Debenture indicates a long term tool depicting the debt of the enterprise towards the external party. It earns a certain rate of interest, issued by the enterprise, may or may not be safe against assets, i.e. stock.

Meaning of Shares :

Shares are parts of ownership interest in a business concern or financial asset that furnish for an equal allocation in any profits, if any are stated, in the mode of dividends. The 2 types of shares are common shares and preferred shares.

This article is a ready reckoner for the students to learn about what are the differences between Shares and Debentures.

Basis

Shares

Debentures

Meaning

Shares are the company owned capital.

Debentures are the borrowed capital of the company.

Holder

The person who holds the ownership of the shares are called as Shareholders.

The person who holds the ownership of the Debentures are called as Debenture holders.

Status

Owners.

Creditors.

Mode of Return

Shareholders are given the dividends.

Whereas, debenture holders are given interest.

Payment of Return

Dividends can be paid to the shareholders out of profits earned by the company.

Interest can be paid to the debenture holders, regardless of if the company has earned profits.

Security for payment

No.

Yes.

Voting Rights

Shareholders possess voting rights.

Debenture holders doesn’t possess any right for voting.

Conversion

Shares cannot be converted into Debentures.

However, Debentures can easily be converted into Shares.

Trust Deed

Trust deed is not carried out in the shares.

When the debentures are circulated to the public, a trust deed has to be carried out.

The above mentioned is the concept, that is elucidated in detail about the Difference between Shares and Debentures for the class 12 Commerce students. To know more, stay tuned to BYJUS.