Shareholders Vs. Debentures Holders
Shareholders vs. Debentures holders
- Meaning- The subscribed to the shares are shareholders. Shares are the parts of share capital. On the other hand, Debenture-holders are the subscribers to debentures. Debentures are part of loan.
- Status- Shareholders are the owners of the company whereas Debenture-holders are the creditors of the company.
- Return- Shareholders are paid dividend on their holdings. Debenture-holders are paid interest on debentures held by them.
- Regularity of return- Dividends are paid to the shareholders, when there is sufficient profits. The rate of dividend is not fixed. Dividends are not the regular source of income. Whereas, Interest on debentures is paid at fixed rate regularly.
- Security- Shares are not secured. Debentures are normally secured.
- Right to attend meeting- Shareholders are invited to attend the annual general meeting of the company. Debenture-holders are not invited, unless any decision affecting their interest is taken.
- Repayment- Share capital is not returned except in case of redeemable preference shares. Debentures being loan is repaid by the company.
- Priority of refund- In case of termination of the corporation, shareholders funds are refunded after every claim is settled. Debenture-holders have a priority of the refund of their loan prior to shareholders.
- Restriction on issue- There are certain restriction on issue of shares at discount. There is no restriction as to issue of debentures at discount.
- Control- Shareholders control the affairs of the company. It is managed by the Board of Directors, the elected representatives of the shareholders. Debenture-holders are not concerned with the management and regulation of the company.
Difference between Shares (Equity) and Debentures
- Meaning- Shares are the denominations of share capital. Debentures are the denomination of loan.
- Return- Dividend is received on shares. Interest is received on debentures.
- Assured return- Rate of dividend on equity shares is not assured. Rate of interest on debentures is assured.
- Security- Shares are not secured. Debentures are ordinarily secured.
- Repayment- The money received on equity shares is not required to be returned except in dissolution.
- Status- The holders of equity shares are the owners of the company. The holders of debentures are the creditors of the company.
Preference Shares vs. Debentures
There are also preference shares that are different than common shares. There are several differences between a preference share and a debenture. The main difference is that a preference share is an equity share, like a shareholders share. But the preference share gives the owner preferential rights in the event of a dividend paying or a liquidation of the underlying company. A debenture is a debt security that is issued by a corporation (or a government entity), and is not backed by an asset of a lien.
Another difference between preference shares and debentures is preference shares are an equity security and the debenture is a debt instrument that gives the owner fewer rights, but at a higher interest rate, because of the added risk.