Secretarial Practice · Ch 4 — Issue of Debentures
Distinction: Shares and Debentures
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Distinction: Shares and Debentures
A share and a debenture are both instruments through which a joint stock company raises capital, and a Secretarial Practice examination frequently tests a student's ability to distinguish the two precisely, rather than merely list their individual features in isolation.
| Basis | Shares | Debentures |
|---|---|---|
| Meaning | A unit of the company's own share capital — an ownership security | A certificate acknowledging a loan taken by the company — a creditorship security (Section 2(30)) |
| Status of holder | Owner/member of the company | Creditor of the company |
| Nature of capital | Owned, generally permanent capital | Borrowed, generally temporary capital |
| Return | Dividend, payable only out of profit, if declared | Interest, a fixed contractual charge, payable irrespective of profit |
| Voting right | Ordinarily carries voting rights | No voting rights at all — barred by Section 71(2) |
| Security | Unsecured — no charge on company assets | May be secured by a charge on company assets, held by a Debenture Trustee |
| Conversion option | Not applicable | May carry a right of conversion into equity shares (convertible debentures) |
| Discount on issue | Restricted under the Companies Act, 2013 | No comparable statutory restriction |
| Priority on winding up | Paid last, out of whatever residual assets remain | Paid ahead of shareholders, as a liability of the company |
| Redemption | Equity shares are irredeemable during the company's life | Ordinarily redeemable, by an agreed method, on or before a fixed date |