Difference Between Shares and Debenture

Shares are uniform parts of the share capital. Debentures are uniform part of the loan capital
of a company.  Rights, privileges and the liabilities accompanying these instruments are
different from one another.  The main differences are as follows:

1.       Share holders are owners of the company whereas the debenture holders are creditors
of the company.  Therefore, while the shareholders have a multi-faceted interest in the welfare
of the company.  The debenture holders  have a very limited interest in the company. i.e. limited
to receiving interest on time.

2.       A shareholder is entitled to receive dividend when there are profits.  The rate of
dividend varies from year to year depending upon the amount of profit.  On the other hand, the
debenture holders are entitled to interest at a fixed rate which the company must pay whether or
not there are profits.

3.       A shareholder enjoys the rights of proprietorship of a company whereas a debenture

holder can enjoy the rights of a lender only.

4.       A shareholder has a right of control over the working of the company by attending and
voting in the general meeting.  They are able to decisively influence the composition of Board of
directors and other senior management positions.  The debenture holders do not have any
voting right, and they are unable to exercise any such influence.

5.       A debenture holder gets a fixed rate of interest per annum payable on fixed dates
whereas a shareholder gets a dividend far higher if the company earns good profits.

6.       Dividend on shares is not a charge against profit.  Interest on debentures, on the other
hand, is a charge against profits and is deducted from profits for the purpose of calculating tax
liability.

7.       In respect of shares, dividend is payable only when the proposal to pay dividend is

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Difference Between Shares and Debenture

passed by the shareholders at the annual general meeting of the company.  There is no need of
such approval in the case of payment of interest on debentures.

8.       A company can purchase its own shares from the market under certain condition
whereas it can purchase its own debentures and cancel them or re issue them.

9.       A shareholder has a claim on the accumulated profits of the company and is normally
rewarded with bonus shares whereas a debenture holder has no such claims whatsoever after
he has been paid the interest amount.

10.   In the event of winding up, shareholders cannot claim payment unless all outside
creditors have been paid in full.  Debenture holders being secured creditors get priority in
payment over the shareholders.

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