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 equity shares and preferred shares.

Shares vs Debentures

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 is called as Shareholders. The person who holds the ownership of the Debentures is 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 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.

Mus Read: What are the Types of Debentures?

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