Difference between debenture and equity share

Difference between debenture and equity share-min

The basic difference between debenture and equity share is of type. A debenture is a type of loan but equity share is the type of capital. To know the difference between these two, we must clear the meaning of these terms and explained as follows: –

Meaning of Debenture:

The Debenture is the type of loan or debt instrument which is issued in the market to subscribe to the public. It is not taken from any individual institution. It is issued like equity or preference shares in the market for purchase and sale to the number of subscribers. Like every type of loan, it also has a fixed rate of interest which will be paid by the company to the subscriber of these debentures. The subscriber of the debenture is known as the Debenture holder. 

Definition of Debenture: 

“Debenture includes debentured stock, bonds, and any other instrument of the company evidencing a debt, whether constituting a charge on the assets of the company or not.”

– Section 2(30) of the Companies Act, 2013

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge.”

-Topham

Meaning of Equity Shares:

The shares capital which are carrying voting rights, rights to dividends, and ownership known as Equity shares. The Equity share has all rights on the balance of profit after payment of interest and preference dividend. The dividend of the equity shareholders is paid after the payment of dividends to Preference shares.

“(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting, or otherwise in accordance with such rules as may be prescribed;”

– Section 43 subsection (a) for the Indian Companies Act, 2013

Chart of Difference between debenture and Equity Share: –

Basis of Difference

Debenture

Equity Share

Meaning The Debenture is the type of loan or debt instrument which is issued in the market to subscribe to the public. The shares capital which are carrying voting rights, rights to dividends, and ownership known as Equity shares.
Types It is a type of loan It is a type of Capital. 
Rate of Return It has a fixed rate of Return which is known as Interest. It has a fluctuating rate of return depends on the profit of the year and which is known as a Dividend.
Secured  It may or may not be secured against the assets.  it is not secured
Voting Rights It does not have voting rights. It does have voting rights.
Convertibility It can be convertible after maturity into an Equity share.  It can not be convertible.
Risk Debenture holders are relatively safe. Shareholders are at a greater risk. 
Repayment will be repaid after a specific period.  it will not be repaid through the whole life of the business.
Priority as to Repayment In the case of winding up of the company the payment made to debenture holders before the payment of made to equity shareholders. In the case of winding up of the company the payment of made to equity shareholders at the end. 


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 Difference between debenture and Equity Share

 

Conclusion:

Thus, both terms have the only main difference between the type and repayment of terms. But these both terms are related to the generation of funds for the expansion of the business. 

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