Difference Between Debenture and Share, Definition of Shares

Difference Between Debenture and Share: Know the key difference between Share and Debentures. Total shares capital of a company is divided into a number of small invisible units of a

Raju Choudhary

Difference Between Debenture and Share

Difference Between Debenture and Share: Know the key difference between Share and Debentures. Total shares capital of a company is divided into a number of small invisible units of a fixed amount called a share. The fixed value of a share, printed on the share certificate, is called nominal value/par value/face value. The liability of holder of shares is limited to the issue price of shares acquired by him.

Definition of Shares

Meaning: A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares

Definition: The capital of a company is divided into parts, called shares. The shares are said to be movable property and, subject to certain conditions, freely transferable, so that no shareholder is permanently or necessarily wedded to a company.

Definition of Debentures

Meaning: A debenture is an instrument issued by a company under its common seal as acknowledgment of a debt. It contains a contract for repayment of the principal amount on or before a specified date and for payment of interest at a fixed rate until the principal sum is repaid.

“Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not; It is evident from the definition that the term debentures covers both secured and unsecured debentures. Must Check Difference Between LLP and Partnership.

Debentures are generally classified into different categories on the basis of:

  • (1) convertibility of the instrument
  • (2) Security of the Instrument,
  • (3) Redemption ability
  • (4) Registration of Instrument

Difference Between Debenture and Share

DebentureShare
Debentures constitute a loan.Shares are part of the capital of a company.
Debenture holders are the creditors of the companyShareholders are the owners of the company
Debenture holders have no voting rightShareholders have voting rights and hence control the total affairs of the company
Debenture interest is paid at a predetermined fixed rate. It is payable whether there is any profit or not.Dividend on shares is payable at a variable rate which is mainly affected by the profitability of the company.
Interest on debentures is a charge on the profits of the company and hence deductible as an expense under income taxDividends is the appropriation of the profits of the company hence are not deductible as an expense under income tax
The dividend is not allowable deduction as business expenditure.Shares cannot be converted into debentures under any circumstances
Debenture can be converted into shares asper the terms of issueShares can be forfeited for non-payment of allotment and call money
Debentures cannot be forfeited for non payment of calls moneyShares cannot be issued at a discount as per Companies Act, 2013
At the time of liquidation, debenture holders are paid off before the shareholdersAt the time of liquidation, shareholders are paid at the last after debenture holders, creditors, etc
Debenture can be issued at a discount, no such restriction in companies act, 2013In the balance sheet, debentures are shown under secured loans
Maximum Underwriting commission on Debentures can be 2.5% of Issue price as per companies Act, 2013 or As authorised by Articles whichever is less.Maximum Underwriting commission on Shares can be 5% of Issue price as per Companies Act, 2013 or As authorised by Articles whichever is less.
Return of allotment is not required for allotment of debentures.Return of allotment in e-Form No. 2 is to be filed for allotment of shares.
Interest paid on debenture is a business expenditure and allowable deduction from profits.Dividend is not allowable deduction as business expenditure.

Tags

Related Post

Join the Discussion