Questions · Q8
Q.Distinguish between Shares and Debentures.
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Start your 14-day free trial to unlock the full solution →| Basis | Shares | Debentures |
|---|---|---|
| Status of holder | Owner/member of the company | Creditor/lender to the company |
| Return | Dividend — variable, payable only out of profit, at the Board's discretion | Interest — fixed, payable regardless of profit, a contractual obligation |
| Voting rights | Yes (equity shares; preference shares only in limited cases) | No |
| Security | Unsecured — a share is not backed by a charge on assets | Often secured by a charge on the company's assets |
| Repayment | Generally not repaid until winding up (except redeemable preference shares) | Usually repayable on a fixed date, per the terms of issue |
| Priority on winding up | Repaid only after all creditors, including debenture holders | Repaid before any amount is returned to shareholders |
| Risk | Higher — return and capital both depend on the company's fortunes | Lower — a fixed, contractual claim ranking above shareholders |
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