Major Differences between Debentures and Equity Shares
Arjun EP
DEBENTURES
Debentures are also known bonds and debt but there are slightly differences.
The owner of debentures is called debenture holders.
Debentures have fixed interest rate and maturity period.
Normally, interest is payable annually or sometime half yearly.
Debenture holders have priority to receive interest and refund money before equity shareholder at the time dissolution of firm.
The company returns amount of debenture to the holders at the end of predetermined maturity period.
EQUITY SHARES
Equity shares are also called ordinary share, common share or common stock.
The persons who receive or purchase shares from limited company are called shareholders.
Equity shareholders do not have preferential rights in the payment of dividend and repayment of capital at the time of winding up.
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Differences between Debentures and Equity Shares
|
Bases |
Debentures |
Equity shares |
|
Nature |
Debentures are long-term loan or debt. |
Equity shares are ownership |
|
Identity |
The person who takes debentures is known debenture holders |
The person who takes equity shares is known equity shareholder |
|
ownership |
Debenture holders are the long-term creditors of the company. |
Equity shareholders are the owners of the company. |
|
Return on investment |
Debenture holders receive interest on their investment. |
Equity shareholders receive dividend on their investment. |
|
Rate of return |
Interest rate is pre fixed. |
Dividend rate is not pre fixed. |
|
Priority of return |
At the time of winding up, debenture holders are refunded before equity shareholder. |
At the time of winding up, equity shareholder are refunded after paying every claim. |
|
Voting right |
Debenture holders do not have voting right. |
Equity shareholder have voting right to control the total affairs of the company. |
|
Conversion |
Debentures are convertible. |
Equity shares are not convertible. |
|
Redemption |
Debentures can be redeemed after maturity period. |
Equity shares never redeemable. |
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