Back to: Store Management SS 2
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In today’s Store Management class, we will be learning about Differences Between Debentures And Shares
Differences Between Debentures And Shares
Share is a unit of small denominations that sum up to form a capital. The company’s capital is divided into smaller portions or units that represent the company’s ownership percentage. And the people who subscribe to shares are called Shareholders.
The term ‘shareholder’ is used to denote any person, institution or company that has ownership of at least one share of a company’s stocks, also referred to as equity.
Hence, each such unit is called a share.
For Example: If the Capital of the company is N20,00,000, divided into 2,00,000 units of N10 each. Each such unit of N10 will be called a Share.
The share shows the claim of the shareholder in the equity of the company. The purpose of dividing the capital into shares is to raise the fund conveniently required by the company.
The shares are movable and transferable property that can be exchanged easily. A share of the public company is freely traded at the Stock Exchange. The value of the share is subject to change depending upon various market factors and the value keeps on fluctuating. The shares are broadly classified under two categories:
- Equity Shares
- Preference Shares
What is a Debenture?
A Debenture is a long-term debt instrument issued by a company to borrow a fund from the market. Debentures are a form of debt capital. A Debenture carries a fixed rate of interest called a ‘ Coupon Rate’, which is paid at a specific date, whether a company makes a profit or a loss. It is a good source of finance for companies that do not want to dilute their equity or lack collateral for the Loan. A Debenture issued by the company is in the form of a certificate, given under the common seal of the company. A debenture certificate states the Principal amount lent by the investor, the rate and terms of interest payment, and the terms of repayment of the principal amount at a specific period.
Debenture includes debenture stock, bonds or any other securities of a company, whether constituting a charge on the assets of the company or not.
The Companies Act states that no company is allowed to issue debentures having a maturity period of more than 10 years from the date of issue. However, infrastructure companies can issue debentures for more than 10 years but not exceeding 30 years.
Let’s take a broader look at the difference between Debentures And Shares:
Basis | Shares | Debentures |
Meaning | A share is a unit(a part) of the capital of the company. | A debenture is a debt instrument issued to raise a borrowed fund. |
Nature | A share forms an Equity capital. | A debenture forms a debt capital. |
Holder | A holder of a share is known as a shareholder. | A holder of a debenture is known as a debenture holder. |
Return | A shareholder earns a dividend in return for their investment. | A debenture yields a fixed rate of interest(coupon rate) at a specified date. |
Dividend and Interest Payment | A dividend is paid only when there is a profit. | An interest on debenture is paid irrespective of whether the company is making a profit or incurring a loss. |
Voting Rights | A shareholder enjoys the right to vote at the company’s meeting. | A debenture holder has no right to participate or cast a vote at the company’s meeting. |
In summary, Shares are movable and transferable property that can be exchanged easily, while Debentures are long-term debt instruments issued by a company to borrow a fund from the market.
Evaluation
What is a Share?
Reading Assignment
Define the following:
- Shareholders
- Debentures
Weekend Assignment
Highlight five differences between Debentures And Shares.
We hope you enjoyed today’s class. In our next class, we will be talking about Meaning of Speculation To Stock Market.
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