What Are the Difference Between Shares and Debentures

Shares are uniform parts of the share capital. Debentures are a 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. Shareholders 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 a dividend when there are profits. The rate of the 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 the Board of directors and other senior management positions. The debenture holders do not have any voting rights, and they are unable to exercise any such influence.
5. A debenture holder obtains 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. The 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, the dividend is payable only when the proposal to pay the dividend is passed by the shareholders at the annual general meeting of the company. There is no need for such approval in the case of payment of interest on debentures.
8. A company can purchase its own shares from the market under certain conditions, 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 as debenture holder possesses no such claims whatsoever after he has been paid the interest amount.
10. Shareholders cannot be paid back (Except in the case of redeemable preference shares) so long as the company is going concerned. Debentures are normally issued for a specified period after which they are repaid.
11. 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.