Difference between a share and a debenture (Class 12)
Looking for the difference between a share and a debenture as per the syllabus of class 12 CBSE, ISC, and state Board.
I have explained this topic in detail.
Distinction between share and Debenture (Class 12)
Following are the basic difference between both.
| Basis | Share | Debenture |
| Capital vs Loan | A share is the part of the capital of the company, thus, shareholders are the owners of the company | A debenture is a part of the loan and as such, the debenture holders are the creditors of the company. |
| Dividend vs Interest | A shareholder gets a dividend from the company. | A debenture holder gets interest from the company |
| Fluctuating or fixed rate of dividend or interest | The dividend is paid only when there are profits. The rate of dividend may fluctuate year to year as per the profits and decisions of the directors. | The rate of interest is fixed and it must be paid irrespective of the company making a profit or incurring a loss. |
| Voluntary or compulsory redemption | It is at the option of the company to return the amount of shares by buying back its own shares. | The amount of debentures must be returned according to the terms of the issue. |
| Priority of repayment of principal in case of winding up | In the case of winding up, the payment of share capital is made after the repayment of debentures. | In the case of winding up, the payment of debentures is made before the payment of share capital. |
| Unsecured or Secured | A share is always unsecured. Hence, they bear more risk. | Debentures are usually secured on the assets of the company. Hence, they bear little risk. |
| Restriction on issue of discount | Under Section 53 of the companies Act 2013, shares can not be issued at discount except sweat equity shares. | There are no restrictions on the issue of debentures at discount. |
| Voting Rights | Share confers on its holder the right to participate in and vote at company’s meetings. | A holder of debenture neither possesses any voting right in the company’s meetings nor can participate in the meeting |
