12 Difference between Shares and Debentures

Shares and debentures are two popular methods to invest in the stock market or company. With the help of shares and debentures companies generate money for the business. Shares are the small divided parts of the total capital of the company. Shares provides ownership to the shareholders. Debentures are the long term debt instruments on the basis companies borrowed the money from the general public on a fixed interest rate.

Shares and debentures are methods of the investments. Investments are very sensitive because if investment goes wrong the whole gain of life becomes zero. So it’s very important to understand the concept of shares and debentures. In this article we will discuss in detail about the share and debentures. We will also discuss the difference between shares and debentures.

Shares Vs Debentures

Sr. No	Shares	Debentures
1	Part of the owners fund	The borrowed fund
2	Who owns shares are known as shareholder	Who owned the debentures are known as debentures holder.
3	Also known as the owner of the company	Are the creditors of the company.
4	Provides the voting rights	No voting rights
5	Equity shareholders have control over the management and decisions of the company	No control on the management and decisions of the company.
6	Shareholders gets dividends	Debenture holders gets the fixed interest.
7	100 % guarantee of money back	No guarantee of money back in shares
8	No trust deed is carried out	Trust deed is carried out.

Shares

Shares are the smallest divisions of the total capital of the company. When a company needs money to grow their business in that case the company sells their share in the market. After selling, the company generates the amount. The person who buys the shares known as the shareholders. And these shareholders because the partners and owners of the company. Share holder gets the voting rights in the company. Voting rights means shareholders have right to say or vote about the new requirements like CEO and other important post. Shareholders also gets the right to control the management of the company. Share known as the owner’s fund.

Shareholders are the real owners of the company. When a company gets profit in that case a part of profit goes to the shareholders. This profit part is known as the dividends. Person mainly invest money in company for getting dividends and the capital gain. Share are available in the stock market. These days anyone can buy share from the NSE and BSE.

Types of the shares.

1. Equity shares:

                        The share which carries the voting rights but dividends are not fixed are known as the equity shares. These shares are repaid after the payments of all Liabilities.

2. Preference

   shares

                        The shares which do not carry the voting rights but have the fixed dividends are known as the preference shares. These shares are redeemable in Nature.

Example

Ravi wants to start a company but he doesn’t have money to start the company. So, Ravi divides the total capital in the small parts which are known as shares. He sells it in the market. Many people buy his share and he gets the money for the company. The person who buys his company’s share became Ravi’s partner or owners of the company. These shareholders get a certificate against share buying.

Debentures

Debentures are the certificates which are provided to the person who lends money on a fixed interest to the company. Debentures are the small divisions or parts of the capital of the company. These are the instrument which are used for the long term debts. The amount which is collected by the debentures are the borrowed money. A fixed interest rate is given by the company to the debentures. People buy debentures to get the regular interest against their money.

Debentures are known as the creditors of the company. They don’t get voting rights and controls of the company. Debentures caries trust deed. Debentures are easily converted into the shares.

Types of the debentures

1. Secured
2. Unsecured
3. Convertible
4. Non-convertible
5. Registered
6. Bearer

Example

Yash opens a company but he doesn’t have sufficient money to run the company. And he wants to own all ownership itself. So he goes for loan from the bank but the bank refused to give loan. In that case he divides the capital of the company in the debentures. He offers these debentures to the normal people of the market. Many people buy the debentures of the yash’s company. In this way Yash collects money for the business. Yash fixed an interest amount for every debenture. The collected money from the debentures are terms as the borrowed money.

Main differencee between shares and debentures.

1. Share is a part of the owner’s fund. While debentures are the borrowed fund.
2. Person who owns shares are known as shareholder. While the person who owned the debentures are known as debentures holder.
3. Shareholders also known as the owner of the company. While the debentures are the creditors of the company.
4. Share provides the voting rights to the shareholders. No voting rights for the debentures.
5. Equity shareholders have control over the management and decisions of the company. Debentures have no control on the management and decisions of the company.
6. Shareholders gets dividends. While debenture holders get the fixed interest.
7. Share holder gets dividends when company gets profit. While in case of debentures company has to pay interest in profile or loss both cases.
8. 100 % guarantee of money back in debentures. While no guarantee of money back in shares
9. In shares no trust deed is carried out. In debentures trust deed is carried out.
10. Shares cannot be converted into debentures. Debentures are easily converted into shares.
11. No charges are charged for the payments of the shares. Some charges are charged for the payments of the debentures.
12. In the winding up repayment priority debentures are more than the shares.

Conclusion

These days’ investments are very popular among the peoples. Both shares and debentures are the methods to generate money for the business as well as investment methods. Share provides the ownership to the shareholders. While debenture holders get the priority for the payments at the time of winding up. Share can be easily available on nifty and sensex. Shares and debentures are the best method for the investments in the companies.  Shareholder gets more returns when company generate the profit. If company goes down share value also goes down.

This is all about the shares and debentures. We hope this article will clear your investment plans for shares and debentures. If you have any questions or doubt, please feel free to comment on us. For more articles like this please go through our website.