The debenture is a financial instrument which is selling by a company for raising funds from the capital market. It is a long-term security yielding a fixed rate of interest, issued by a company and secured against assets. Share is the company’s own capital. The total amount of capital of a company is accumulation by the shares. That is why share is the minimum single portion of a company capital.
Though shares and debentures both are sources of capital for Joint Stock Company, there are some differences between them as follows:
- Nature: Share is a portion of the company’s capital.
- Object: Company collects its capital by selling its shares. It means the main objective of allotting shares is to collect capital.
- Ownership: Shareholders are the true owners of the company.
- Capital: The amount got after selling of shares is the company’s own capital.
- The benefit of the holders: Shareholders got a dividend from the company’s net income.
- Business Operation: Shareholders can take part in the operation of the business. They present the rights of taking part.
- Income Certainty: Shareholders have no income certainty. It totally depends on the amount of the company’s net income, the higher the income and the higher the amount of dividend and vice versa.
- Voting Right: As Shareholders are the owner, so they have the right to pulling vote.
- Level of Selling: Ordinary Shares are sold at the initial step of the company.
- Security: It does not necessary any security for shares.
- Tax: Company has to pay a certain amount of tax to the Government on its earnings at a certain rate.
- Nature: Debentures are the document of the documents of the company’s debt.
- Object: Company sales debentures collecting long-term external funds.
- Ownership: Debenture holders are the creditors of the company.
- Capital: The amount got after selling of debentures is the company’s debt capital.
- The benefit of the holders: Debenture holders got a certain portion of interest from the company’s operation.
- Business Operation: Debenture holders have no right to take part in the operation.
- Income Certainty: As debenture holders got a certain amount of interest at the end of the year in the form of profit. That’s why they have no direct relation to company’s profit or loss.
- Voting Right: Debenture holders have no right of voting on the company’s decision.
- Level of Selling: On the other hand, Debentures are sold when the company requires capital for the expansion of the business.
- Security: Sometimes security is the need for debentures.
- Tax: It does not necessary to cut off the tax against the interest amount.
At last, the conclusion comes that shares and debentures are totally different things, though they are sources of financing of the company. And they have several impacts on company’s total value, leverage, and the market price of shares.