Q.Distinguish between shares and debentures.

Every difference between a share and a debenture ultimately reduces to one fact: a share represents ownership, a debenture represents a debt.

A share and a debenture are both instruments through which a joint stock company raises capital, but they place the person who buys them in entirely different legal positions, and every practical difference between them flows from that single starting point.

As to meaning and status, a share is a unit of the company's own share capital, an ownership security, and its holder becomes a member and part-owner of the company; a debenture is a certificate of loan taken by the company, a creditorship security, and its holder becomes a creditor, never an owner. As to nature of capital, share capital is owned, permanent capital, not repaid during the company's lifetime; debenture capital is borrowed, temporary capital, generally repaid after a specified period. As to return, a shareholder receives dividend — fluctuating for equity shares, fixed for preference shares — payable only out of profit the company has actually earned and only if declared; a debenture-holder receives interest, fixed at the time of issue and payable irrespective of whether the company has made any profit at all. As to voting rights, shareholders (particularly equity shareholders) ordinarily carry voting rights and participate in the company's management; debenture-holders, under Section 71(2) of the Companies Act, 2013, carry no voting rights whatsoever. As to security, share capital is generally unsecured, with no charge created over company assets in the shareholders' favour; debenture capital, especially where secured, is backed by a charge on the company's assets. As to time of issue, shares are typically issued at the company's formation or early growth stage; debentures are typically issued at a later stage …

A frequent slip is stating that debenture-holders 'sometimes' get voting rights in proportion to their holding, confusing them with shareholders; Section 71(2) of the Companies Act, 2013 bars any debenture from carrying voting rights, with no such general exception. Students also sometimes reverse the winding-up priority, stating share …