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: –
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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.”
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
Basis of Difference
|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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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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