Question

"Equity shares and debentures play a very important role in long term credit." What are they? How do they help?

Answer 1

1. Equity shares:- Share means the smallest unit in which the share capital of a company is divided and includes stock. Equity share is common security issued under permanent or owner's fund capital. Equity shares are the most important source of raising long-term capital. Equity shares are those shares that do not carry any special or preferential rights in the payment of annual dividend or repayment of capital. At the time of winding up also the capital of equity, shareholders are returned only after every claim has been settled.
2. Debentures:- Debentures includes debentures stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge or the assets of the company or not. Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long-term debt capital. Debentures are called creditorship securities because debenture holders are called creditors of a company.