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Differences between preference shares and debentures * Preference Shareholders are effectively owners; debenture-holders are creditors. * Preference Shareholders may vote at AGMs and be elected as directors; debenture-holders may not vote at AGMs or be elected as directors. * Preference Shareholders receive profit in the form of dividends; debenture-holders receive a fixed rate of interest. * If there is no profit, the shareholder does not receive a dividend; interest is paid to debenture-holders regardless of whether or not a profit has been made. * In case of dissolution of firms debenture holders are paid first as compared to shareholder.
The word ‘Debenture’ is derived …show more content…
* Basis of Difference | * Preference Shares | * DEBENTURES | * 1. Capital | * A share is a part of equity or preference share capital of a company. The holders of the shares may be described as part owner of the company. | * A debenture is a part of loan capital of the company. The holder of a debenture is the creditor of the company. | * 2. Return | * Return on share is known as dividend. A company declares dividend only when there are profits and its rate may vary from year to year. | * Return on a debenture is known as interest and the company compulsorily pays it at a fixed rate whether there are profits or losses. | * 3. Appropriation | * Dividend is an appropriation of profit and is therefore debited in Profit & Loss Appropriation Account. | * Interest on debenture is a charge against profits and is therefore debited in Profit & Loss Account. | * 4. Charge on Property | * Shares do not create any charge on the assets of the company. | * Debentures create a charge on the asset of the company …show more content…
Discount on Issue | * Shares can be issued at discount only when the conditions lay down in Section 79 of the Companies Act 1956 are fulfilled. | * There are no restrictions on issue of debentures at a discount. | * 7. Premium on Issue | * The premium received on issue of shares can be utilised by the company subject to the conditions given in Section 78 of the Companies Act 1956. | * Premium received on issue of debentures can be utilised by company in any manner it likes. | * 8. Purchase | * A company cannot purchase its own shares | * A company can purchase own debentures from the open market. | * 9. Convertibility | * Shares cannot be converted into debentures. | * Debentures can be converted into shares according to the conditions of issue of debentures. | * 10. Control | * A shareholder has the right to control the affairs of the company by exercising his right to attend the general meeting of the company and by exercising his voting right | * A debenture holder does not have any right to control the affairs of the company. | * 11. Winding up | * At the time of winding up the shareholders are paid their capital at the end. | * Debenture holders have a priority as to return of amount received from them in the event of winding up of the company.
Differences between preference shares and debentures * Preference Shareholders are effectively owners; debenture-holders are creditors. * Preference Shareholders may vote at AGMs and be elected as directors; debenture-holders may not vote at AGMs or be elected as directors. * Preference Shareholders receive profit in the form of dividends; debenture-holders receive a fixed rate of interest. * If there is no profit, the shareholder does not receive a dividend; interest is paid to debenture-holders regardless of whether or not a profit has been made. * In case of dissolution of firms debenture holders are paid first as compared to shareholder.
The word ‘Debenture’ is derived …show more content…
* Basis of Difference | * Preference Shares | * DEBENTURES | * 1. Capital | * A share is a part of equity or preference share capital of a company. The holders of the shares may be described as part owner of the company. | * A debenture is a part of loan capital of the company. The holder of a debenture is the creditor of the company. | * 2. Return | * Return on share is known as dividend. A company declares dividend only when there are profits and its rate may vary from year to year. | * Return on a debenture is known as interest and the company compulsorily pays it at a fixed rate whether there are profits or losses. | * 3. Appropriation | * Dividend is an appropriation of profit and is therefore debited in Profit & Loss Appropriation Account. | * Interest on debenture is a charge against profits and is therefore debited in Profit & Loss Account. | * 4. Charge on Property | * Shares do not create any charge on the assets of the company. | * Debentures create a charge on the asset of the company …show more content…
Discount on Issue | * Shares can be issued at discount only when the conditions lay down in Section 79 of the Companies Act 1956 are fulfilled. | * There are no restrictions on issue of debentures at a discount. | * 7. Premium on Issue | * The premium received on issue of shares can be utilised by the company subject to the conditions given in Section 78 of the Companies Act 1956. | * Premium received on issue of debentures can be utilised by company in any manner it likes. | * 8. Purchase | * A company cannot purchase its own shares | * A company can purchase own debentures from the open market. | * 9. Convertibility | * Shares cannot be converted into debentures. | * Debentures can be converted into shares according to the conditions of issue of debentures. | * 10. Control | * A shareholder has the right to control the affairs of the company by exercising his right to attend the general meeting of the company and by exercising his voting right | * A debenture holder does not have any right to control the affairs of the company. | * 11. Winding up | * At the time of winding up the shareholders are paid their capital at the end. | * Debenture holders have a priority as to return of amount received from them in the event of winding up of the company.