What are the major differences between debentures and shares?
The major differences between debentures and shares are as follows
(1) Rights: A Debenture constitutes a loan and a Debenture holder is only a creditor of the company and not a member of the Company. The Shares represent a part of the share capital of the capital and shareholders are members of the Company
(2) Approval for disbursement of funds as dividend / interest: in debentures the question of getting the approval of the members for payment of interest does not arise. In shares, dividend is payable only when it is recommended by the Board and approved by the general meeting of the shareholders.
(3) Liability: In the case of Debentures, a Debenture holder must be repaid before the shareholders are repaid, and they (Debenture holders) owe no liability to the other stakeholders of the Company.
(4) Return of Capital: Debentures are redeemable either at a fixed date or at the option of the company during the lifetime of the Company itself. Shares are non-repayable during the lifetime of the company except in the case of redeemable preference shares.
(5) Charge on Assets: Debentures are generally secured. Shares are not secured by a charge on the assets of the company.