Question

What is meant by debenture? Distinguish between debenture and share.

Hint:

Debenture holder = creditor, fixed interest, no vote, paid first. Shareholder = owner, variable dividend, has vote, paid last.

Answer 1

Step 1: Define debenture:
A debenture is a certificate issued by a company, under its seal, acknowledging a debt owed by the company to the holder, and carrying a fixed rate of interest, repayable at a specified date or on demand.

Step 2: Distinguish debenture from share on key points:

Basis	Debenture	Share
Status of holder	Creditor of the company	Owner of the company
Return	Fixed rate of interest, paid regardless of profit	Dividend, which varies with profit and board decision
Voting right	No voting right	Equity shareholders have voting rights
Repayment	Repaid/redeemed at a fixed maturity	Generally not repaid during the company's life (permanent capital)
Priority on winding up	Paid before shareholders	Paid after all creditors, including debenture holders
Security	May be secured by a charge on assets	Not secured

Final Answer:
A debenture is an acknowledged, interest-bearing loan to the company; unlike a share, its holder is a creditor (not an owner), earns a fixed interest rather than a variable dividend, has no voting rights, and is repaid ahead of shareholders on winding up.