Question

What are the differences between Shares and Debentures?

Hint:

Remember: Shares = Owners, Debentures = Creditors.

Answer 1

Concept: Shares and debentures are two important sources of capital for a company, but they differ in nature and characteristics.
Step 1: Differences.
\[ \begin{array}{|c|c|c|} \hline Basis & Shares & Debentures
\hline Nature & Ownership capital & Borrowed capital
\hline Status of holder & Shareholder (owner) & Creditor
\hline Return & Dividend (variable) & Interest (fixed)
\hline Voting rights & Available & Not available
\hline Risk & High risk & Low risk
\hline Repayment & Not repaid during life & Repaid after a period
\hline Security & No charge on assets & Usually secured
\hline \end{array} \]
Step 2: Conclusion.
Thus, shares represent ownership while debentures represent a loan to the company.