Difference between Shares and Debentures

What are the major differences 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.

Shares vs Debentures

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”.

Also see:

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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