Profile
Settings
Refer your friends
Sign out
Shares
Shares are considered as little parts of the ownership of the organization. A shared owner is holding a little part of the equity of the company. Every share gives specific rights and benefits to the owner. Shares are categorized into two categories:
1. Equity share
Equity shares are known as shares that are advertised in the stock market. Equity shares provide voting rights to the owners. Equity shares can’t be redeemed. In case an organization decides to wind up its equity, then liabilities are given first, and then comes the turn of equity shares.
2. Preference Shares
Preference shares are those shares that can be redeemed. Preference shares don’t convey voting rights. The fixed dividend is offered on these shares through the organization. The organization pays this fixed dividend irrespective of how much profit it generates. If the organization decides to wind up its equity, then the preference shares are paid first before the equity shares.
Several factors affect the price of buying shares. These factors are market supply, market demand, the performance of the organization, industrial performance, etc.
Debentures
A debenture is considered a debt instrument based on the long term. An organization takes a loan from the public in the form of a debenture. No voting rights are provided to the holder of a debenture. In case an organization decides to wind up, the first preference is given to debenture holders before shareholders and preference shareholders. This is because the organization is bound to pay the creditors first. Debentures are debt tools that are used to generate debt capital through the company.
Shares vs debentures
The difference between shares and debentures is given below :
Income
The income obtained from debentures is fixed. This is because debentures are the interest on the money that is invested. The payment of interest is mandatory even if the company is facing losses. The income of debentures holders is assured. Therefore, debentures are considered less risky, but the income is less in general cases.
The company pays dividends to its shareholders in the case of shares. The dividends are paid when the company experiences surplus profits. The major motive behind paying dividends is to raise the self-esteem of shareholders. The returns received from shares are not fixed. Therefore, the risk factor is high.
Ownership
Shares provide little ownership of the company. The investor may or may not receive the voting rights. In case a company generates profit, the shareholders will receive dividends.
In the case of debentures, the investor would become a creditor of the organization and, therefore, doesn’t receive any voting rights.
Security
No security is given by shares. The company might face profit or loss. When buying shares, the company’s image and historical data can be utilized. However, the risk will still prevail. But the investor will receive a tiny section of the ownership of the organization.
In debentures, there is some security and safety. The organization could offer collateral. A secured debenture is safe. On the other hand, an unsecured debenture might lead to a loss of money. However, an unsecured debenture generates a higher interest rate.
Voting rights
Shares may or may not get investor voting rights. This depends on the kind of shares. However, an investor becomes a part of the company the moment he buys shares.
In debentures, no voting rights are given. An investor is considered an individual who lent a loan to the organization. No interest would also be given.
Investment confidence
The confidence in investment is greater in debentures as compared to the shares. This is because the interest rate of shares is dependent upon the profits or losses made by the organization. In the case of debentures, the money is returned no matter if the company is suffering from losses.
The decision to invest in shares of the organization could be taken by analyzing the historical data as well as an image of the company.
Conclusion
Shares are considered as little parts of the ownership of the organization. A shared owner is holding a little part of the equity of the company. Every share gives specific rights and benefits to the owner. A debenture is considered a debt instrument based on the long term. An organization takes loans from the public in the form of a debenture. No voting rights are provided to the holder of a debenture. Shares and debentures can be differentiated based on multiple bases like security, voting rights, investment confidence, income, etc.
