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Need To Know About Difference Between Shares and Debentures
Need To Know About Difference Between Shares and Debentures

April 16, 2020

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Difference Between Shares and Debentures

There are any ways through which a company can raise capital from the market. The investors too, have a very wide scope of schemes and securities in which they can invest. Almost everybody has heard the names shares and debentures. Most of the people do not even know the meaning of the terms. They both seem similar yet are different in many ways. In this article I am going to explain the Difference Between Shares and Debentures both of them.

Shares

The capital of a company is divided into some parts. These parts are called shares. These shares are issued by the company in the market to raise funds for the company. Funds are generally raised by the company in parts as application money, allotment money, first call, second call and further. The investor can subscribe to the shares by paying the application money. The shareholder of any company is considered to be the owner of the company. The part of share capital owned by the shareholder comprises the part of ownership he owns in the company. They are provided a right to vote in the meetings however, their dividend is not fixed. The dividend is provided according to the reserves and the profits earned by the company. The shares issued by any company can never be converted into debentures in any conditions. The shares can be sold in and purchased from the stock market. No security is deposited by the company for the issue of shares. There are two types of shares, Preference Shares and Equity Shares. The shares are further divided into Registered, Authorised or Nominal Capital, Called up Capital, Issued Capital, Unissued Capital, Uncalled up Capital, Paid up Capital, Subscribed Capital, and Reserve Capital.

Debentures

Debentures are issued by a company to raise long term funds for the company. The money raised through debentures is raised fully instead of parts. The debentures issued are redeemed by the company after a certain period of time if they are redeemable. A security of payment is to be kept while issuing the debentures. The owners of debentures are considered as a creditor of the company. The debenture holders are required to give a dividend at a fixed percentage already decided by the company. The rate of interest on debentures is written on the deed of the debenture. For example 10% Debentures means that the debentureholders will be provided an interest at the rate of 10% per annum. The debentureholders do not enjoy any voting rights in the decisions of the company. There are three types of debentures viz. Secured Debentures, Unsecured Debentures, Convertible Debentures, Non-convertible Debentures, Registered Debentures, and Bearer Debentures. The convertible debentures can be converted into shares.

Difference Between Shares and Debentures

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I\'m Vihaan Sharma who works in SAG Infotech Private Limited and writes on Blog section such as SAG RTA, SAG Infotech, SAGMart for automobiles and technical section and much more.

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