Check out The Differences Between Debentures and Shares!
TOPICS : Politics
Jan 22 , 2020 16 min read 907 Views 0 Likes 0 Comments
In the space of trading and the stock market, the words shares and debentures sound similar as they both are closely associated with the investment. For a business, the two considerable ways, to raise funds for the expansion & development of business, are debt and equity. When the firm opts for the former method i.e. debt, it receives a loan from the public by issuing debenture to them and paying interest regularly to the creditors i.e. the public.While in the latter case i.e. Equity, a firm or a company opts to issue shares to the public and hence allows them to be part of the firm. Such people who invest in the company’s shares are known as shareholders. Shares are referred to as the share capital of a company which entitles the shareholder to hold the firm’s share capital in a certain amount.In a similar fashion, a debenture is also a significant financial tool that represents the business’s debt to the third party or public and reauthorized them to receive a fixed rate of interest from the company. Currently, many investors tend to make investments in Types of Shares And Debentures to reap future-benefits from them. So, it is very important to comprehend these two securities of investments. This article sheds light on the meaning of Shares & Debentures And The Differences between the two.
Read Also: Equity Shares: Classification, Benefits & Drawbacks
Meaning of DebenturesA debenture refers to the debt instrument, issued by the company to raise capital or funds and usually unsecured by collateral. As they are not backed by any collateral, they rely on the issuer’s reputation & creditworthiness and secured by his credibility. The fund so raised is known as borrowed capital and the debenture holders are known as creditors of the business. The debentures can be transferred freely with a definite rate of interest and are redeemable as well as redeemable. Different Types of Debentures are as follows:
- Secured Debentures
- Bearer Debentures
- Unsecured Debentures
- Convertible Debentures
- Non-convertible Debentures
- Registered Debentures
Meaning of SharesA part or a portion of a company's share capital is referred to as shares and are generally sold in the stock market to raise the company’s capital or fund. The total capital of a company is divided into small fractions and sold out to the investors at a certain price known as share price and entitle the shareholder to a proportion of the profits known as dividends. The shares are easily transferable and are widely classified into two:
- Equity share
- Preference share
Read Also: All You Need to Know About Debentures, Its Types, Advantages and DisadvantagesWrapping up: The business world has its own array of capital format which is highly complicated and includes debt fund, share capital, angel capital, surplus reserves, etc. Each element of capital format has its own features that make it relevant under different circumstances and situations. Shares and Debentures are the two most common components of capital structure, however, they are extremely different from each other. The most fundamental Difference Between Preference Shares And Debentures the two is that Shares refer to the company’s capital which is owned by the shareholders and entrust the right to vote in the company’s issues as well as the right to claim their proportion in the company’s profits. Whereas, debentures refer to the debt instruments which are secured in nature and issued by the company to raise funds. Debentures have a fixed rate of interest with cumulative & non-cumulative peculiarities and redeemable after a certain time-frame either in a lump or instalment.
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