Distinguish between shares and debentures?

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Explain the concept of ADR, GDR₂, IDR?

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Shares:

Shares are a type of financial instrument that represent ownership in a company. When an individual or an entity purchases shares of a company, they become shareholders and are entitled to a portion of the company's profits.

Types of Shares:
- Equity Shares: Also known as ordinary shares, equity shares represent ownership in a company and provide voting rights to the shareholders. Holders of equity shares have the potential to receive dividends if the company distributes profits.
- Preference Shares: Preference shares carry preferential rights over equity shares. They provide a fixed rate of dividend and preference in the distribution of assets during liquidation. However, preference shareholders usually do not possess voting rights.

Debentures:

Debentures, on the other hand, are debt instruments that companies issue to raise funds from the public. When an individual or an entity purchases debentures, they become creditors to the company. Instead of ownership, debenture holders have a claim on the company's assets and are entitled to receive fixed interest payments.

Key Differences:
1. Ownership: Shares represent ownership in a company, while debentures represent debt owed by the company to the debenture holders.
2. Return on Investment: Shareholders receive dividends, which are a share of the company's profits, whereas debenture holders receive fixed interest payments.
3. Risk: Shareholders bear the risk of the company's performance, as the value of shares can fluctuate based on market conditions. Debenture holders have a lower risk as they are entitled to a fixed payment.
4. Voting Rights: Shareholders typically have voting rights, allowing them to participate in decision-making processes within the company. Debenture holders do not possess voting rights.
5. Priority in Claims: In case of liquidation, debenture holders have priority over shareholders in the distribution of assets. They are considered creditors and are repaid before shareholders.

Conclusion:

In summary, shares represent ownership in a company and provide the potential for dividends and voting rights. On the other hand, debentures represent debt owed by the company and provide fixed interest payments. The key differences lie in ownership, return on investment, risk, voting rights, and priority in claims during liquidation. Both shares and debentures serve as important financial instruments for companies to raise capital from the public.

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