• Business
  • Finance
  • Banking
  • Education
  • General
  • Law
  • Science
  • IT
  • English

Key Differences

Know the Differences & Comparisons

Difference Between Shares and Debentures

shares vs debenturesIssuing shares is the primary method of raising funds for companies. Shares are the owned securities, and share capital is the owned capital. Generally, the capital of the company is divided into a number of equal units, i.e. shares. It describes the holder’s right to the specified amount of the company’s share capital.

Conversely, debenture implies a long-term instrument showing the company’s debt towards the external party. It yields a definite rate of interest, issued by the company and may or may not be secured against assets like stock and debtors.

For every publicly traded company, the issuance of shares is mandatory and must be maintained throughout the company’s life. As against, it is not compulsory for every publicly traded company to issue debentures.

In a world where people want to multiply their income and become financially independent at an early stage of their life, it is crucial to know the difference between shares and debentures.

Content: Shares Vs Debentures

  1. Comparison Chart
  2. What are Shares?
    • Characteristics
    • Types
  3. What is Debentures?
    • Characteristics
    • Types
  4. Key Differences
  5. Video
  6. Similarities
  7. Conclusion

Comparison Chart

Basis for ComparisonSharesDebentures
MeaningShares are a form of security indicating the ownership in an organization.Debentures refer to a kind of security that indicates debt to a company.
What is it?Shares represent the capital of the company.Debentures represent the debt of the company.
FundCompany-ownedBorrowed
HolderThe holder of shares is called a shareholder.The holder of debentures is called a debenture holder.
Status of HoldersOwners of the company.Creditors of the company.
IndicatesA part of the company's capital.Loan
Voting RightsYesNo
ReturnThe company pays dividends to shareholders.The company pays interest to debenture holders.
Payment of ReturnDividends can be paid to shareholders only out of profits.Interest can be paid to debenture holders even if there is no profit.
Allowable deductionThe dividend is an appropriation of profit, so it is not allowed as a deduction.Interest is a business expense and is allowed as a deduction from profit.
ConvertibilityNot convertible into debentures.Convertible into shares
Repayment in winding upRepayment of capital to shareholders is made after paying off liabilities.Debentures get priority over shares, and so they are repaid before shares.
Return on InvestmentOn recommendation by the board, the dividend is paid to the shareholders.Fixed-rate of interest paid before the dividend declaration.
ChargeIt does not carry any charge.Charge on the assets of the company.
Trust DeedNo trust deed is executed in the case of shares.When the debentures are issued to the public, a trust deed must be executed.

What are Shares?

The smallest division of the company’s capital is share. It is a part, interest, or, say, share in the share capital of a company. A share is the unit into which the company’s capital is divided. It represents the interest in the assets and the company’s profits. It also covers several rights provided by the company’s Articles of Association. Shares have a unique number and face value.

The shares are offered for sale in the open market, i.e. stock market, to raise capital for the company. The rate at which the shares are offered is the share price.

Note: Only a public limited company can issue shares to the general public through an IPO or FPO. To subscribe to the shares, the general public has to submit their applications.

Characteristics of Shares

characteristics-of-shares

  • It is an ownership security. Simply put, the shareholder is a part owner of the company.
  • Shares have a nominal value, and they carry a unique number.
  • A share certificate is issued under the common seal of the company. It certifies that the person whose name is stated is the registered holder of a defined number of shares.
  • The company can issue shares at par, premium and at a discount.
  • The shares are movable, i.e. transferable from one shareholder to another.

What is Share Capital?

Share capital is the total of the nominal value of shares of a company is share capital.

Types of Shares

Shares are of two types:

  1. Equity Shares: The shares that carry voting rights on which the rate of dividend is not fixed. They are irredeemable in nature. These are ordinary shares of the company. They do not carry any preferential rights or priority in dividend payment and capital repayment. These shares are issued first, before any shares are issued, and their repayment is made at the last. The company pays dividends to shareholders only when it earns profit.
  2. Preference Shares: Shares that enjoy certain privileges or preferential rights as to dividends and return on capital. The dividend is paid at a fixed rate to the preference shareholders before the payment of the dividend to equity shareholders. In the event of liquidation of the company, capital of preference shareholders must be repaid prior to the repayment of capital to equity shareholders.

Also Read: Difference Between Equity Shares and Preference Shares

What are Debentures?

A debenture is a long-term debt instrument issued by the company under its common seal to the debenture holder. A loan raised by a firm is divided into numerous parts, wherein each part is called a debenture. It shows the indebtedness of the company. Therefore, the capital raised by the company is the borrowed capital. Hence, debenture holders are the company’s creditors. Further, they are freely transferable.

A debenture is a certificate that the borrowing company issues to the debentureholder indicating the amount lent by him. In simple words, the certificate or document is nothing but an acknowledgement of debt, plus it is a formal promise to repay the given sum along with interest on or before the date prescribed. The certificate is issued under a common seal. It is serially numbered.

They do not carry voting rights. There is a fixed rate of interest paid to the debenture holders every year. The interest is paid to the holders periodically till maturity.

A debenture is like a bond by the company. The company offers shares to the public by means of a prospectus. It contains terms and conditions for repayment of both principal and interest.

Characteristics of Debentures

characteristics-of-debentures

  • It is a creditorship security.
  • It represents borrowed capital.
  • Interest is paid yearly, even when the company does not profit. If interest and borrowed funds are not paid to the debenture holders on a timely basis, they can take legal action against the company.
  • Debentures do not carry any voting rights.
  • Debentures are repayable after a specific period of maturity or when the company goes for liquidation.

Types of Debentures

  1. Secured Debentures
  2. Unsecured Debentures
  3. Convertible Debentures
  4. Non-convertible Debentures
  5. Registered Debentures
  6. Bearer Debentures

Also Read: Difference Between Bonds and Debentures

Key Differences Between Shares and Debentures

  1. Shareholders are the owners of the share units of the company, whereas debenture holders are creditors of the company. A share is a part of the company’s owned capital. On the other hand, debenture is a part of a company’s borrowed capital.
  2. The dividend is paid to shareholders as a return. However, it is paid only when the company earns profits. As against, interest is paid to the debenture holder, no matter if the company earns a profit or not.
  3. The dividend of the company varies with the amount of profit earned by the company. In contrast, the rate of interest on debentures is fixed, and it is not dependent on the profits earned. So, it is regular.
  4. The company issues shares without any mortgage or charge against the company’s property. However, debentures are usually issued against the security of specific assets like stock or debtors. One should note that debentures can be unsecured while a share is generally secured.
  5. In case of winding up of the company, shareholders have residual rights. On the other hand, debenture holders have the first right to the company’s assets after paying off dues and employee liabilities.
  6. As a matter of right, the holder cannot claim a dividend. On the contrary, as a matter of right, the holder can claim interest.
  7. Shares carry voting rights, and they have the right to participate in the company’s management. Conversely, debentures do not carry voting rights. Also, they cannot participate in the company’s management.
  8. Share capital is refundable only when the company goes into liquidation. As against, the company can refund the amount of debentures even before the winding up of the company. It must be repaid as per the terms of the issue. The company cannot repay redeemable preference shares without formality.
  9. Repayment to debenture holders takes place first; thereafter, repayment of capital to shareholders takes place. Sharecapital is repaid after settlement of the claims of debentureholders and creditors.
  10. Conversion of debentures into shares is possible in the case of convertible debentures. However, it is not possible to convert shares into debentures.
  11. Interest paid to debenture holders is tax deductible from profits after charging income tax. However, the dividend is not tax deductible.
  12. A trust deed is not executed in the case of shares. In contrast, a trust deed is executed when the debentures are issued to the public.
  13. Shares are issued at a discount, subject to some legal compliance. Debentures can be issued at a discount without any legal compliance.

Video: Shares Vs Debentures

Similarities

  • Both are Financial assets.
  • company issues shares and debentures to public.
  • Source of raising money for the company.
  • They can be issued at a discount.

Conclusion

Above all, share capital appears under ‘ shareholder’s fund’ on the equity and liabilities side of the Balance Sheet. Conversely, debentures appear under long-term borrowings, under the head ‘Non-Current Liabilities’ in the equity and liabilities side of the balance sheet.

You Might Also Like:

Difference Between Equity Shares and Preference Shares BondsDifference Between Bonds and Debentures right shares vs bonus sharesDifference Between Right Shares and Bonus Shares Dividend Vs InterestDifference Between Interest and Dividend share certificate and share warrantDifference Between Share Certificate and Share Warrant share vs stockDifference Between Share and Stock

Comments

  1. Promise says

    May 20, 2015 at 12:14 am

    This really helped me…thank you

    Reply
  2. sujatha.s says

    August 11, 2015 at 9:24 am

    i got necessary information from this article, thank you so much.

    Reply
  3. shani sein says

    September 23, 2015 at 9:08 am

    it has really helped me…i love this

    Reply
    • Surbhi S says

      September 23, 2015 at 11:22 am

      Thanks for expressing your views with us. πŸ™‚

      Reply
  4. lindelwe says

    September 26, 2015 at 6:33 pm

    thank u so much it has helped me a lot.

    Reply
  5. Saurav Kulkarni says

    October 30, 2015 at 4:33 pm

    This information is very useful for me , Thank you …..

    Reply
  6. Waji says

    November 24, 2015 at 12:54 pm

    Very helpful, thank you.

    Reply
  7. Deepansh pratap tyagi says

    February 4, 2016 at 11:24 pm

    this is really very helpful, thank you

    Reply
  8. arkavg says

    March 7, 2016 at 6:52 pm

    The explanation cleared my tough doubt. Thanks allot to the publisher.

    Reply
  9. sruthy says

    March 9, 2016 at 1:18 pm

    Really helpful for me to take necessary information regarding this, which helps in my seminar

    Reply
  10. DURGESH K. PAWAR says

    March 10, 2016 at 12:43 pm

    Thanks a lot. Keep improving our knowledge.

    Reply
  11. Ashok says

    April 1, 2016 at 11:14 am

    nice explain

    Reply
  12. Shekhar Ruhela says

    April 6, 2016 at 4:27 am

    Thanks for a clear differentiation, much helpful to understand

    Reply
  13. Rakesh kumar Ranjan says

    August 13, 2016 at 5:20 pm

    Thank you so much.

    Reply
  14. Anmol trivedi says

    December 17, 2016 at 10:23 am

    Very useful notes… Briefly described!!!

    Reply
    • Surbhi S says

      December 17, 2016 at 10:34 am

      I am much thankful to all of you for appreciating the content.. πŸ™‚

      Reply
  15. Gautam Tibrewal says

    December 23, 2016 at 6:47 pm

    Simple clear understanding

    Reply
  16. Neermal says

    January 10, 2017 at 7:51 pm

    Thank you it helped me a lot

    Reply
  17. Pramod says

    March 1, 2017 at 11:24 am

    Thanks.Simple and clear

    Reply
  18. Purva says

    March 15, 2017 at 1:22 pm

    Great Information. Thank you.

    Reply
  19. puja says

    March 21, 2017 at 7:33 pm

    thank u… it was a great help

    Reply
  20. MUQADDAR KHAN says

    March 24, 2017 at 10:44 am

    THANKU SO MUCH IT HAS HELPED TO ME LOT……

    Reply
  21. Carol says

    March 24, 2017 at 6:42 pm

    Thanks a lot. At least I can now differentiate between the two

    Reply
    • Surbhi S says

      April 17, 2017 at 3:15 pm

      We are really contented with your views, it motivates us to do better, keep sharing, keep reading πŸ˜€ 😎

      Reply
  22. elijah a says

    June 7, 2017 at 6:15 pm

    it really helped me in my assignment

    Reply
  23. Mounika says

    July 7, 2017 at 7:01 am

    Thank you

    Reply
  24. Avlokit Maurya says

    August 29, 2017 at 4:59 pm

    Thank You so much, It has helped me a lot……….

    Reply
  25. Sarachandran Nair says

    September 18, 2017 at 3:27 pm

    Very useful information, Thank you.

    Reply
  26. Rahul says

    October 6, 2017 at 11:03 am

    Thanx so helpful

    Reply
  27. Chethan says

    March 19, 2018 at 10:22 am

    Very presize and accurate explanation thank u

    Reply
  28. shivaji says

    July 9, 2018 at 5:45 pm

    It is very helpful, Thank you.

    Reply
  29. Rajendra Buradikatti says

    October 9, 2018 at 8:47 pm

    I got the information I need. Thank you.

    Reply
  30. Dilip sharma says

    December 22, 2018 at 8:39 am

    Helpful ..

    Reply
  31. jennifer katram says

    December 27, 2018 at 11:58 am

    This information about Shares and Debentures is very helpful for my students and community members. thanks

    Reply
    • Surbhi S says

      December 27, 2018 at 12:14 pm

      Thanks a ton to all the viewers for constantly appreciating us. It encourages us to do better. Key visiting and sharing your views with us. πŸ™‚

      Reply
      • Suprim says

        December 28, 2018 at 11:37 pm

        What is the difference between a debenture and a fixed deposit?

        Reply
  32. Ram Malav says

    January 29, 2019 at 1:52 pm

    Really good article

    Reply
  33. Riya says

    February 18, 2019 at 5:00 pm

    We are privileged to have this contemptuous content from the site .on regards Thank you so much ……….!!!!!!!!😊😊

    Reply
  34. Mathew says

    May 16, 2019 at 11:44 am

    I have never seen such a wonderful, clear explanation of these concepts….Great!

    Reply
  35. Rohan Mahant says

    May 27, 2019 at 11:19 pm

    Wonderful article
    Thank you so much for this helpful article .πŸ˜€

    Reply
  36. Benney. J says

    October 28, 2019 at 9:15 pm

    Very well explained. Helped a lot, as I’m just getting into this business. Thanks

    Reply
  37. Dina pascal says

    December 20, 2019 at 10:10 am

    Thank you very simple and clearly

    Reply
  38. Ahmed EkbaLz says

    January 1, 2020 at 8:48 pm

    Thanks a lot to the creator. It helped me the most & fetl comfort over reading it😍

    Reply
  39. XTOPHER says

    May 7, 2020 at 1:51 pm

    Thank You! THANK You for sharing this information in an easily digestible, mentally friendly comprehensive way.
    Greatly, deeply, appreciation to the generous author. πŸ™

    Reply
  40. Ajay says

    August 26, 2020 at 7:33 am

    Very helpful, thank you πŸ™‚

    Reply
  41. Debasish Rout says

    October 6, 2020 at 11:31 am

    Really a very helpful resource..
    I cleared my doubt. AWESOME ❀️ SUPERB

    Reply
  42. Daniel Anamkulya says

    November 19, 2020 at 2:03 am

    Thanks a lot for a clear differentiation and very simple

    Reply
  43. Rikesh sardar says

    December 17, 2020 at 12:21 pm

    Beautiful information , thank you

    Reply
  44. Christopher says

    February 24, 2021 at 9:20 am

    this indeed deserve high credit. thanks so much for a wonderful work.

    Reply
  45. Aondover Sughter Amos says

    August 3, 2021 at 12:52 pm

    This work is so logical thanks so much

    Reply
  46. Mohammed Abubakor says

    December 3, 2021 at 1:07 pm

    I always prefer this site campared to others when this is any content that I’m looking for. Thank you soooo much for describing the differences in a easy way.

    Reply
  47. Shopia says

    April 24, 2022 at 10:53 pm

    This is a place where you can find information that you can trust, and understand as you observe your importance.
    This information is very helpful for your visitors, which will provide a lot of good information to the visitors of your website.

    Thank You

    Reply
  48. Rebecca Mwandalile says

    June 26, 2022 at 1:55 pm

    Thanks for the information it’s has really helped me

    Reply
  49. Leewinsky says

    April 21, 2023 at 8:41 pm

    thanks you so much you have really helped me in my revisions

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Top 5 Differences

  • Difference Between PERT and CPM
  • Difference Between Micro and Macro Economics
  • Difference Between Developed Countries and Developing Countries
  • Difference Between Management and Administration
  • Difference Between Qualitative and Quantitative Research



New Additions

  • Difference Between Deforestation, Reforestation and Afforestation
  • Difference Between Race and Ethnicity
  • Difference Between Customer Service and Customer Experience
  • Difference Between Human Capital and Human Development
  • Difference Between Systems Approach and Contingency Approach
  • Difference Between Industrial Relations and Employee Relations
  • Difference Between Introduction and Executive Summary
  • Difference Between Programmed and Non-programmed Decisions
  • Difference Between Depreciation and Devaluation of Currency
  • Difference Between Consumer Market and Business Market

Categories

  • Banking
  • Business
  • Education
  • English
  • Finance
  • General
  • IT
  • Law
  • Science
fb-follow youtube follow

Copyright © 2025 · Key Differences · Contact Us · About Us · Privacy