Differences Between Shareholders And Debentures Holders
Listed below is a comprehensive picture of the major difference between shareholders and debenture holders:
A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder.
A shareholder subscribes to the shares of a company using a share market app. Shares are the parts of share capital. On the other hand, debenture-holders are the subscribers to debentures. Debentures are part of a loan.
A shareholder or member is the joint owner of a company; but a debenture holder is only a creditor of the company.
Shareholders are invited to attend the annual general meeting of the company. Debenture holders are not invited, unless any decision affecting their interest is taken.
Shareholders control the affairs of the company. It is managed by the Board of Directors, the elected representatives of the shareholders. Debenture holders are not concerned with the management and regulation of the company.
Shareholders receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss Account and the Auditor’s Report.
Interest on debentures is payable whether there are profits or not. But dividend on shares is to be paid only when the company has earned profits. Interest on debentures may be paid out of capital but dividend on shares can never be paid out of capital.
Rate of dividend on equity shares is not assured, whereas rate of interest on debentures is assured.
Shares cannot be converted into debentures whereas debentures can be converted into shares.
Convertible debentures which can be converted into shares at the option of debenture holder can be issued, while shares convertible into debentures cannot be issued.
Debentures are generally secured and carry a charge on the assets of the company, whereas shares have no such charge. The debenture holder, being a secured creditor of the company, is paid-off prior to a shareholder in the event of winding up of a company.
Share capital is not returned except in case of redeemable preference shares. Debentures being loan is repaid by the company.
Debentures can be issued at a discount, whereas shares cannot be issued at a discount except as provided under Section 79 of the Companies Act.
There can be mortgage debentures i.e. assets of the company can be mortgaged in favor of debenture holders. But there can be no mortgage shares. Assets of the company cannot be mortgaged in favor of shareholders.