Difference Between Debenture and Share (Companies Act 2013)

Difference Between Debenture and Share (Companies Act 2013)


Meaning of Share:

The term share is defined b Section 2 (84) of the Companies Act 2013, ‘Share means a share in the share capital of a company and includes stock’.

A share is a unit by which the share capital is divided. The total capital of the company is divided into small parts and each part is called share and the value of each part/unit is known as face value. A share is a small unit of the capital of a company. It facilitates the public to subscribe to the capital in smaller amounts.

A person can purchase any number of shares as he wishes. A person who purchases shares of a company is known as a shareholder or a member of that company.

Difference Between Debenture and Share


Meaning of Debenture:

Debentures are one of the principal sources of raising borrowed capital to meet long and medium-term financial needs. Over the years debentures have occupied a significant position in the financial structure of the companies.

The term debenture has come from the Latin word ‘debere’ which means to ‘owe’.
The term debenture has not been defined clearly under the Companies Act.
Sec 2(30) of the Companies Act 2013, only states that ‘the word debenture includes debenture stock, bonds and another instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

Under the existing definition, debenture includes debenture stock. Debenture means a document that either creates or acknowledges debt. Ordinarily, debenture constitutes a charge on some property of the company, but there may be a debenture without such charge.

Difference Between Debenture and Share

1) MeaningA share is a part of share capital
of a company. It is known as
ownership securities.
A debenture is a certificate of loan
taken by a company. They are also
known as creditorship securities.
2) StatusA holder of shares is the owner of
the company. Therefore share capital
is owned capital.
A holder of debenture is a creditor
of the company. Debenture capital is loan capital or borrowed capital.
3) NatureIt is permanent capital. It is not
repaid during the lifetime of the
It is temporary capital. Generally
it is repaid after a specific period.
4) Voting rightShareholders being owners enjoy
normal voting rights in general
meeting. They participate in the
management of the company.
Debentureholders being creditors,
do not have any voting rights.
They can not participate in the
management of the company.
5) Return on InvestmentReturn on shares is called
dividend. Equity shareholders
receive divided at fluctuating rate
whereas preference shareholders
receive divided at fixed rate.
Return on debenture is called
interest. It is fixed at the time of
issue. Interest is paid even when
company has no profit.
6) SecurityShare capital is unsecured capital.
No security is offered to the
Debenture capital being loan
capital is secured by creating a
charge on Company’s property.
7) Time of IssueShares are issued in the initial
stages of the company formation.
Debentures are issued at a later
stage, when the company has
properties to offer as security.
8) SuitabilityShares are suitable for long term
Debentures are suitable for medium-term finance.

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