Q.Distinguish between shares and debentures.

Shares and debentures both raise company capital, but one makes the investor an owner and the other makes the investor a lender — every other difference between them follows from that one fact.

Shares and debentures are both instruments a joint stock company uses to raise capital, but they differ fundamentally in the nature of the holder's relationship with the company, and a Secretarial Practice exam frequently tests this distinction directly.

A share is a unit of the company's own share capital — an ownership security — and its holder is a member of the company, entitled to whatever dividend the Board declares out of profit, and ordinarily carrying voting rights that give the holder a real say in how the company is run. Shares are generally unsecured, carry no conversion feature, and equity shares in particular are irredeemable during the company's life, repaid, if at all, only on winding up and only after every other claim on the company has been satisfied — shareholders are, in that sense, the company's residual claimants, paid last precisely because they are also the company's ultimate controllers.

A debenture, by contrast, is a certificate acknowledging a loan the company has taken — a creditorship security, as Section 2(30) of the Companies Act, 2013 defines it — and its holder is a creditor, not a member, entitled to interest at a fixed rate payable whether the company has earned a profit or not. Section 71(2) bars a debenture from carrying any voting right at all, so a debenture-holder has no say in the company's management. Debentures may be secured by a charge on the company's assets, may carry a conversion feature into equity shares, and are generally redeemable at a fixed date — and, unlike shareholders, debenture-holders are repaid ahead of every class of shareholder on the company's winding up, since their claim is a liability of the company rather than a share in its ownership. …

A common error is stating debentures 'can never be secured' or 'always carry a fixed charge' — security is a separate classification, not a universal debenture feature. Students also sometimes claim shareholders are 'always paid before' debenture-holders because they are 'o …