Definition of shares and debentures ?

Question

Answer

A share is a unit of account for financial instruments, such as the stock market, limited partnerships, and investment trusts.

It is essentially an exchangeable piece of value of a company which can fluctuate up or down, depending on several different market factors.

Companies divide capital into shares as a means of raising capital. Shares are also known as stocks.

There are common stocks, which British people call ordinary shares, and preference shares. Ordinary shareholders have voting rights and receive dividends according to profit levels.

The value of a share that a company issues depends on its face value – the capital of a company divided by the total number of shares. A firm’s authorized capital refers to the maximum amount in shares it is allowed to sell.

A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital. Like other types of bonds, debentures are documented in an indenture.

Answer

Share:-- A unit of ownership that represent an equal proportion of a company capital.it entiltles its holder(Shareholder) to an equal claim on company profit and an equal obligation for the company debt's and losses.

Debentures:-- Debenture is a medium-to-long-term debt instrument used by large company to borrow money at a fixed of intrest.

Answer

SHARE:-
The capital of a company is divided into shares. Each share forms a unit of ownership of a company and is offered for sale so as to raise capital for the company. Shares can be broadly divided into two categories - equity and preference shares. Equity shares give their holders the power to share the earnings/profits in the company as well as a vote in the AGMs of the company. Such a shareholder has to share the profits and also bear the losses incurred by the company.
On the other hand, preference shares earn their holders only dividends, which are fixed, giving no voting rights. Equity shareholders are regarded as the real owners of the company. When the shares are offered for sale directly by the company for the first time, they are offered in the primary market, whereas the trading of shares takes place in the secondary market.
DEBENTURE:-
If a company needs funds for extension and development purpose without increasing its share capital, it can borrow from the general public by issuing certificates for a fixed period of time and at a fixed rate of interest. Such a loan certificate is called a debenture. Debentures are offered to the public for subscription in the same way as for issue of equity shares. Debenture is issued under the common seal of the company acknowledging the receipt of money.
The important features of debentures are as follows:
1. Debenture holders are the creditors of the company carrying a fixed rate of interest.
2. Debenture is redeemed after a fixed period of time.
3. Debentures may be either secured or unsecured.
4. Interest payable on a debenture is a charge against profit and hence it is a tax deductible expenditure.
5. Debenture holders do not enjoy any voting right.
6. Interest on debenture is payable even if there is a loss.

Answer

Shares and Debentures: Definition and Explanation

Shares and debentures are common terms used in the financial world, particularly in the context of a company's capital structure and financing options. Understanding the difference between shares and debentures is crucial for investors, as it helps them make informed decisions when investing in a company.

Shares:
Shares represent ownership in a company and are also known as equity securities. When a company decides to raise capital, it can issue shares to investors in exchange for their investment. By purchasing shares, investors become partial owners of the company and are entitled to certain rights, such as voting rights and a share in the company's profits. Here are some key points about shares:

1. Ownership: Shares represent ownership in a company and give investors a stake in the company's assets and earnings.

2. Types: Shares can be of different types, such as common shares and preferred shares. Common shares carry voting rights and provide investors with a share in the company's profits. Preferred shares, on the other hand, generally do not carry voting rights but have a higher claim on the company's assets and earnings.

3. Risk and Return: Investing in shares involves both risks and potential returns. The value of shares can fluctuate based on various factors, including market conditions, company performance, and industry trends. Investors can earn returns through dividends (a portion of the company's profits distributed to shareholders) and capital appreciation (an increase in the value of the shares).

Debentures:
Debentures, on the other hand, are debt instruments issued by companies to raise capital. When investors purchase debentures, they are essentially lending money to the company for a specified period. The company promises to repay the principal amount along with interest at a predetermined rate. Here are some key points about debentures:

1. Debt Instrument: Debentures represent a form of loan taken by the company from investors. Unlike shares, debentures do not confer ownership rights to the investors.

2. Interest Payments: Companies pay regular interest payments to debenture holders at a fixed or floating rate. These payments are contractual obligations and must be fulfilled by the company.

3. Security: Debentures can be secured or unsecured. Secured debentures are backed by specific assets of the company, which act as collateral in case of default. Unsecured debentures, on the other hand, are not backed by any specific assets and are riskier for investors.

4. Priority of Repayment: In the event of bankruptcy or liquidation, debenture holders have a higher claim on the company's assets compared to shareholders. This means that debenture holders are more likely to receive their principal and interest payments before shareholders.

In conclusion, shares represent ownership in a company, while debentures represent a form of debt. Shares provide investors with voting rights and a share in the company's profits, while debentures offer fixed interest payments and priority of repayment in case of bankruptcy. Understanding the differences between shares and debentures is essential for investors to make informed decisions and manage their investment portfolios effectively.

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