Similarities
• Both shares and debentures are transferable
• Both are capital raising mechanisms for the company
• Preference shares and debentures have a prior claim
• Preference shares like debentures earn a fixed rate of interest
• Preferential dividend like interest on debentures is generally cumulative
Differences
• Whereas shares are a unit of capital constituting a holder a member of the company, a debenture is a unit of a loan which constitute the holder a creditor to the company
• Whereas shares generally confer voting rights on members debentures do not
• Whereas shares are not secured, debentures generally are
• Whereas shares earn dividend, debenture holders are entitled interest
• Whereas dividend payable to shareholders generally vary with the company‟s profitability, interest does not
• Whereas companies are not obligated to pay dividend on shares they are required to pay interest
• Shareholders rank after creditors in the satisfaction of claims
• Whereas shares participate in surplus profit, debentures do not.
• Whereas shares are generally irredeemable, debentures are generally redeemable.
Explain the similarities and differences between shares and debentures.
