Debentures and shares are similar in some respects because both can be sold or bought at the stock exchange market. The two can be used as collateral for short-term loans once their market value is established. Despite these similarities, there are other factors that make them different. These factors are as follows:
- A person who holds a debenture is a creditor to the company whereas a shareholder is the owner of the company.
- Notwithstanding whether a company makes profits or losses, a debenture holder must get interests However, a shareholder only gets dividends only when a company makes profits.
- Shareholders have a right to hold meetings and vote, whereas debenture holders do not have this right.
- Debenture holders have a charge on the company’s assets unlike shareholders who do not have a charge over the assets of a company.
- The type of income payable to debenture holders is interests while the type of income payable to shareholders is dividends.
- In winding up of a company, debenture holders are paid first, before holders of preference shares and equity shares.