Q.Distinguish between the following:
Shares and Debentures
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Start your 14-day free trial to unlock the full solution →A share is a unit of ownership capital and its holder is a member/owner; a debenture is an acknowledgement of debt and its holder is a creditor. This basic difference in status drives every other difference between the two.
When a company needs long-term finance it can raise it as owned capital (shares) or borrowed capital (debentures). Both are important sources, but they place the investor in very different positions.
Shares divide the capital of a company into units of ownership. A person holding shares becomes a member and part-owner of the company.
Debentures are written instruments acknowledging a loan taken by the company. A person holding debentures becomes a lender (creditor) to the company.
| Basis | Shares | Debentures |
|---|---|---|
| Meaning | Unit of ownership capital | Acknowledgement of a loan (borrowed capital) |
| Status of holder | Owner / member of the company | Creditor of the company |
| Return | Dividend, which varies with profit | Interest at a fixed rate |
| Certainty of return | Not fixed; paid only if there are profits | Fixed; payable even if there is no profit |
| Voting rights | Equity shareholders have voting rights | No voting rights |
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