Distinguish between debenture and share.
Find the question and answer of Company Law only on Legal Bites.
Question: Distinguish between debenture and share.Find the question and answer of Company Law only on Legal Bites. [Distinguish between debenture and share.]AnswerDebentures and shares are two types of securities that companies can issue to raise funds. In India, the provisions related to debentures and shares are outlined in the Companies Act, 2013. Here's a comparison between the two:Debentures:Definition: Debentures are long-term debt instruments that companies issue to raise funds. They...
Question: Distinguish between debenture and share.
Find the question and answer of Company Law only on Legal Bites. [Distinguish between debenture and share.]
Answer
Debentures and shares are two types of securities that companies can issue to raise funds. In India, the provisions related to debentures and shares are outlined in the Companies Act, 2013. Here's a comparison between the two:
Debentures:
Definition: Debentures are long-term debt instruments that companies issue to raise funds. They are similar to bonds and represent a loan to the company, which promises to pay interest and repay the principal amount at maturity.
Issuance: Debentures can be issued either publicly or privately, and they can be secured or unsecured.
Ownership: Holders of debentures are creditors of the company, not owners. They do not have any ownership rights or voting rights in the company.
Risk: Debentures are generally considered less risky than equity, but there is still a risk of default if the company is unable to repay the principal and interest.
Shares:
Definition: Shares, also known as stocks or equity, represent ownership in a company. When an individual buys a share, they become a shareholder and own a small piece of the company.
Issuance: Shares can be issued either publicly or privately, and they can be ordinary or preference shares.
Ownership: Shareholders are owners of the company and have voting rights in proportion to their ownership. They also have the right to receive dividends, if declared.
Risk: Shares are considered riskier than debentures, as the value of a share is linked to the performance of the company. If the company performs well, the share price may increase, but if the company performs poorly, the share price may decrease.
The main difference between debentures and shares is that debentures represent a loan to the company, while shares represent ownership in the company. Debentures are considered less risky than shares, but holders of debentures do not have ownership rights or voting rights in the company.