What is the definition or difference between share, debenture and loan - Accountancy - Accounting for Share Capital

Question

What is the definition or difference between share, debenture
and loan ?

Arshita Pandey · Accepted Answer

Dear Student,
The difference between Shares and Debentures is given below-

Basis
of Difference

Shares

Debentures

1
Owner or Creditor

Share
holders are the owners since shares forms a are part of owned
capital

Debenture
holder are Creditors since debentures are a part of loan

2
Voting Rights

Share
holders have the voting rights

Debenture
holders do not have any voting rights

3
Returns

Share
holders are entitled for returns in the form of dividend

Debenture
holders are entitled for returns in the form of interest

4 Rate
of Return

The
rate of dividend is not fixed and varies from year to
year

The
rate of interest is fixed and do not vary from year to
year

5
Obligations of Return

Dividend
is appropriation of profit Dividend will not be paid if losses are
incurred by the company

Interest
is charged against profit, interest is payable even if there is no
profit

6
Repayment of Amount

The
amount of share is not returned during the life time of the
company

The
amount of debenture is returned according to the term of
issue

7
Issue

The
issue of shares at discount need adherence to the restrictions
imposed by the Section 79 of the Company Act

There
are no such restrictions for issuing debentures a on
discount

8
Conversion

Shares
cannot be converted into debentures

Debentures
can be converted into shares

9
Risk

Shares
are more risky than debenture as these are unsecured

If
debentures are secured against asset, the risk involved is the
minimal

10
Repayment Priority

Payment
to the share holders is made after settlement of all external
liabilities, i e after debenture holders

Payment
to the debenture holders is made before the share
holders

Loan is an arrangement in which the lender gives money or property
to a borrower and the borrower agrees to return it with interest at
some point of time in future
At the time of winding up of the company, payment is done to the
creditors (that is loan givers) first, then to the debenture
holders and at last, to the share holders

Regards

Basis of Difference	Shares	Debentures
1. Owner or Creditor	Share holders are the owners since shares forms a are part of owned capital	Debenture holder are Creditors since debentures are a part of loan
2. Voting Rights	Share holders have the voting rights	Debenture holders do not have any voting rights.
3. Returns	Share holders are entitled for returns in the form of dividend.	Debenture holders are entitled for returns in the form of interest.
4. Rate of Return	The rate of dividend is not fixed and varies from year to year.	The rate of interest is fixed and do not vary from year to year.
5. Obligations of Return	Dividend is appropriation of profit. Dividend will not be paid if losses are incurred by the company	Interest is charged against profit, interest is payable even if there is no profit.
6. Repayment of Amount	The amount of share is not returned during the life time of the company	The amount of debenture is returned according to the term of issue.
7. Issue	The issue of shares at discount need adherence to the restrictions imposed by the Section 79 of the Company Act.	There are no such restrictions for issuing debentures a on discount.
8. Conversion	Shares cannot be converted into debentures.	Debentures can be converted into shares.
9. Risk	Shares are more risky than debenture as these are unsecured.	If debentures are secured against asset, the risk involved is the minimal.
10. Repayment Priority	Payment to the share holders is made after settlement of all external liabilities, i.e. after debenture holders.	Payment to the debenture holders is made before the share holders.

What is the definition or difference between share, debenture and loan ?