Difference between Shares and Debentures
Shares and debentures are both financial instruments that are used by companies to raise money.
The main difference is shares represent ownership in a company while debentures are a type of loan that a company takes from investors.
Before we move to the differences, let’s understand what are Shares and Debentures:
- Shares: Shares are units of ownership in a company that give the holder the right to a share of the company’s profits and a say in the company’s decision-making.
- Debentures: Debentures are a type of loan that a company takes from investors, usually for a long period of time. The company agrees to pay the investors a fixed rate of interest on the debentures and to repay the principal amount at a later date.
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Now, let’s move to Shares vs Debentures:
Major differences between Shares and Debentures
| Shares | Debentures |
|---|---|
| Shares represent ownership in a company. | Debentures are a loan. |
| Shares give you ownership in a company. | Debentures do not give ownership in company. |
| Shares can go up or down in value depending on the performance of the company. | The value of debentures is fixed. |
| Shares can be bought and sold on a stock exchange. | Debentures are not traded in this way. |
| Shares give you the right to vote on certain company decisions. | Debenture holders do not have this right. |
That’s it.
Note that sometimes, the question might also be asked as “distinguish between Shares and Debentures”.
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Final words
Shares and debentures are both ways that companies can raise money, but they are quite different from each other. Shares represent ownership in a company, while debentures are a type of loan.
It’s important to understand the differences between the two before investing your money.
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