14 Most Important Differences between Debentures and Shares

14 Most Important Differences between Debentures and Shares are listed below:

Debentures:

1. A holder of debentures is called ‘Debenture holder’

2. A debenture holder is not a member of the company.

3. A debenture is a secured debt.

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4. It does not create any voting right.

5. A debenture may be paid out of share capital.

6. A debenture creates a fixed charge or floating charge over the assets of the company.

7. A debenture and its interest must be paid back whether there are profits or not.

8. A debenture holder does not become a contributory’

9. A rate of interest on debenture may be lower than the rate of profit of shares the interest rate is fixed as per the Reserve Bank of India, SEBI, Central Government, and any other laws in force.

10. The company may pay back the debentures even before the prescribed or stipulated date. (In case of perpetual debentures, the company cannot pay back.)

11. Preferential Payments: In case of winding up of a company, the debenture holders are given priority Being they are secured creditors, first they have to be paid (Case-Law: Salomon vs. Salomon & Co. Ltd.)

12. The debenture holders need not bear the expenses of winding up of a company.

13. A debenture may be converted into share, under certain circumstances.

14. A debenture is not a passive property. It is just like a Promissory Note promising to pay the principal plus interest to the debenture holder within a specified period.

Shares:

1. A holder of a share is called “Share holder”

2. A shareholder is a member of the company.

3. It is not a debt It is an investment

4. It creates voting right.

5. A share amount cannot be paid back out of share capital

6. A Share does not create such charge over the company’s assets

7. A dividend on the shares can only be paid when there are profits

8. A share holder may become a ‘contributory’, if the company is wound up, under certain circumstances

9. The rate of profit may be higher than the rate of interest, which is generally fixed, by the company from time to time. Sometimes, there could be no profit. Moreover loss may also occur to the company.

10. Generally, the company could not pay back shares (In case of redeemable preference shares can pay back).

11. Preferential Payments: In case of winding up of a company, in preferential payments, the share holders are given last priority. The residue, after disbursing all debts etc., only could be distributed among shareholders.

12. The share holders are called to make good expenses to certain limit, in case of ‘Call’

13. A share can never be converted into debenture

14. A share is a ‘passive property’ in the hands of the shareholders, and the ‘active property’ is in the hands of the directors and other executives, again who are under