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Needed a Document for deference between debenture holders and shareholders?
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BASIS FOR COMPARISON SHARES DEBENTURES
Meaning :-The shares are the owned funds of the company.
The debentures are the borrowed funds of the company.
What is it?:- Shares represent the capital of the company.
Debentures represent the debt of the company.
Holder :-The holder of shares is known as shareholder.
The holder of debentures is known as debenture holder.
Status of Holders :- Shareholders are the owners
Debenture holders are the creditors.
Form of Return:- Shareholders get the dividend. Debenture holders get the interest.
Payment of return:- Dividend can be paid to shareholders only out of profits.
Interest can be paid to debenture holders even if there is no profit.
Allowable deduction:- Dividend is an appropriation of profit and so it is not allowed as deduction.
Interest is a business expense and so it is allowed as deduction from profit.
Security for payment :- Shareholders have no security of payment.
Debenture holders have security of payment.
Voting Rights:- The holders of shares have voting rights.
The holders of debentures do not have any voting rights.
Conversion:- Shares can never be converted into debentures.
Debentures can be converted into shares.
Repayment in the event of winding up:- Shares are repaid after the payment of all the liabilities.
Debentures get priority over shares, and so they are repaid before shares.
Quantum:- Dividend on shares is an appropriation of profit.
Interest on debentures is a charge against profit.
Trust Deed :-No trust deed is executed in case of shares.
When the debentures are issued to the public, trust deed must be executed.
FAQs on Difference between debenture holders and share holders - B Com
| 1. What is the difference between debenture holders and shareholders? |  |
Ans. Debenture holders are creditors of the company and lend money to the company by purchasing debentures, which are long-term debt instruments. On the other hand, shareholders are owners of the company who hold shares and have ownership rights and entitlement to the company's profits.
| 2. What are the rights of debenture holders and shareholders? | |
Ans. Debenture holders have the right to receive fixed interest payments on their debentures and also have a claim on the assets of the company in case of liquidation. Shareholders, on the other hand, have the right to vote in the company's general meetings, receive dividends, and have the residual claim on the company's assets after all other obligations are fulfilled.
| 3. What is the risk involved for debenture holders compared to shareholders? | |
Ans. Debenture holders have lower risk compared to shareholders as they are considered creditors and have a priority claim on the company's assets in case of bankruptcy or liquidation. Shareholders, on the other hand, bear higher risk as they are the last to receive any remaining assets after all other obligations are fulfilled.
| 4. Can debenture holders become shareholders? | |
Ans. Yes, debenture holders can become shareholders if the company offers an option to convert their debentures into shares. This is known as a convertible debenture. By exercising this option, debenture holders can convert their debt into equity and become shareholders of the company.
| 5. What is the impact of debenture holders and shareholders on a company's capital structure? | |
Ans. Debenture holders contribute to a company's capital structure by providing long-term debt financing, which helps in raising funds for the company's operations. Shareholders, on the other hand, contribute to the capital structure by providing equity financing, which represents ownership in the company. The mix of debt from debenture holders and equity from shareholders determines the overall capital structure of the company.
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