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Difference between Shares and Debentures

In the stock market, shares and debentures are familiar words when it comes to investment. In business, debt and equity
(https://byjus.com/commerce/what-is-equity/) are the two significant methods by which they raise money for the company’s expansion and
growth.

Whenever a firm chooses equity to boost funds, the shares of the company are issued to the public, and whoever buys shares gets an opportunity
to be part of the company. The second is debt a company receives a loan from the public and also agrees to pay the interest regularly. There, the
debenture is issued to the public and whoever buys it is known as creditors.

Here, shares are defined as the share capital of an organization. It gives the shareholder the right to hold a specified amount of the share capital of
the firm. Similarly, a debenture is a great financial tool that shows the debt of a business to the outside party/public and gives a fixed interest rate.
Today, most of the people invest in share or debenture intending to get back better; therefore, it is essential to understand the two securities of
investments.

In this article, we will understand the meaning and difference between shares and debentures.

Also Read: What are Equity Shares? (https://byjus.com/commerce/what-are-equity-shares/)

Meaning of Debentures
A debenture is a debt tool used by a company that supports long term loans. Here, the fund is a borrowed capital, which makes the holder of
debenture a creditor of the business. The debentures are both redeemable and unredeemable, freely transferable with a fixed interest rate. It is
unsecured and sustained only by the issuer’s credibility.

Unlike shareholders, the debenture holders who are the creditor of the company do not hold any voting rights. The debentures are of following
types:

Secured Debentures

Convertible Debentures

Unsecured Debentures

Registered Debentures

Non-convertible Debentures

Bearer Debentures

Must Read: What are the Types of Debentures (https://byjus.com/commerce/types-of-debentures/)?

Meaning of Shares
A tiny part of a firm’s capital is identified as shares and is usually sold in the stock market to raise funds for a business. The price at which the
investor buys the share is known as share price. The shareholders are qualified to receive the dividend as mentioned by an organisation because
they are the owner of a portion of share iv the company.

The shares are transferrable/movable and are broadly categorized into two different sections.

Equity share

Preference share
Quick link: What is preference share (https://byjus.com/commerce/nature-and-classes-of-shares/)?

This article is a ready reckoner for the students to learn about what are the differences between Shares and Debentures.

Shares Debentures

What it means?

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

Status

Owners. Creditors

Mode or 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 Interest can be paid to the debenture holders, regardless of if the company
by the company. has earned profits.

Voting rights

Shareholders possess voting rights. Debenture holders do not 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 BYJU’S.

Important Topics in Debentures

Issue of Debentures (https://byjus.com/commerce/issue-of-debentures/)

Issue and Redemption of Debentures (https://byjus.com/commerce/issue-and-redemption-of-debentures/)

Redemption of Debentures (https://byjus.com/commerce/redemption-of-debentures/)

 1. Based on tenure or redemption

2. Based on convertibility

3. Based on security

4. Based on transferability

5. Based on interest rate

6. Based on mode of redemption

7. Based on coupon rate

Q2 Are debentures liabilities?

Debentures are considered as liabilities as they represent debts that the company needs to pay in the future. It is shown in the balance sheet
as either current liabilities or long-term liabilities.

Q3 Can debentures be converted into shares?

Yes convertible debentures can be converted either partially or fully into shares after a specified period of time (at the time of redemption)

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Ankita Ahirwar
November 26, 2020 at 7:45 pm
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Amazing experience studied well and fully satisfied.

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Mufeeda
February 14, 2021 at 11:22 am
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Very useful, thanks Byjus

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