Q: What are the differences between shares and debentures of a public limited Company?

Explain all types of debentures and elaborate different types of bonds and debentures issued by State Bank Of Pakistan.?

What are the Difference between Shares and Debentures

Difference between Shares and Debentures
Shares are uniform parts of the share capital. Debentures are uniform part of the loan capital of a company. Rights, privileges and the liabilities accompanying these instruments are different from one another. The main differences are as follows: 1. Share holders are owners of the company whereas the debenture holders are creditors of the company. Therefore, while the shareholders have a multi-faceted interest in the welfare of the company. The debenture holders have a very limited interest in the company. i.e. limited to receiving interest on time. 2. A shareholder is entitled to receive dividend when there are profits. The rate of dividend varies from year to year depending upon the amount of profit. On the other hand, the debenture holders are entitled to interest at a fixed rate which the company must pay whether or not there are profits. 3. A shareholder enjoys the rights of proprietorship of a company whereas a debenture holder can enjoy the rights of a lender only. 4. A shareholder has a right of control over the working of the company by attending and voting in the general meeting. They are able to decisively influence the composition of Board of directors and other senior management positions. The debenture holders do not have any voting right, and they are unable to exercise any such influence.

5. A debenture holder gets a fixed rate of interest per annum payable on fixed dates whereas a shareholder gets a dividend far higher if the company earns good profits. 6. Dividend on shares is not a charge against profit. Interest on debentures, on the other hand, is a charge against profits and is deducted from profits for the purpose of calculating tax liability. 7. In respect of shares, dividend is payable only when the proposal to pay dividend is passed by the shareholders at the annual general meeting of the company. There is no need of such approval in the case of payment of interest on debentures. 8. A company can purchase its own shares from the market under certain condition whereas it can purchase its own debentures and cancel them or re issue them. 9. A shareholder has a claim on the accumulated profits of the company and is normally rewarded with bonus shares whereas a debenture holder has no such claims whatsoever after he has been paid the interest amount. 10. Shareholders cannot be paid back (Except in case of redeemable preference shares) so long as the company is going concern. Debentures are normally issued for a specified period after which they are repaid. 11. In the event of winding up, shareholders cannot claim payment unless all outside creditors have been paid in full. Debenture holders being secured creditors get priority in payment over the shareholders

SHARES- 1.share holder is the real owner of the company.share holder have not fixed dividend rate.share holder have not maturity period.share are not redeemed.shares are more volatile.share holder have high risk.share holder have high return.share holder have right on residial income. DEBENTURE-1.debenture holder is the creditor of a company.they have fixed rate of interest.they have a maturity period.they dont have right to vote.debentures are redeemed.they are not volatile.they have no risk.they have low return.

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8 main Differences between Debentures and Share

A. PUSHPARAJ ACCOUNTING

The following are the main difference between a debenture and a share:

A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder. Debenture holder is a creditor of the company and cannot take part in the management of the company while a shareholder is the owner of the company. It is the basic distinction between a debenture and a share. Debenture holders will get interest on debentures and will be paid in all circumstances, whether there is profit or loss will not affect the payment of interest on debentures. Shareholder will get a portion of the profits called dividend which is dependent on the profits of the company. It can be declared by the directors of the company out of profits only. Shares cannot be converted into debentures whereas debentures can be converted into shares. Debentures will get priority is getting the money back as compared to shareholder in case of liquidation of a company. There are no restriction on issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. Convertible debentures which can be converted into shares at the option of debenture holder can be issued whereas shares convertible into debentures cannot be issued. There can be mortgage debentures i.e. assets of the company can be mortgaged in favor of debenture holders. But there can be no mortgage shares. Assets of the company cannot be mortgaged in favor of shareholders.

Explain all types of debentures and elaborate different types of bonds and debentures issued by State Bank Of Pakistan

Types of Debentures

A Debenture is a debt security issued by a company (called the Issuer), which offers to pay interest in lieu of the money borrowed for a certain period. In essence it represents a loan taken by the issuer who pays an agreed rate of interest during the lifetime of the instrument and repays the principal normally, unless otherwise agreed, on maturity. These are long-term debt instruments issued by private sector companies. These are issued in denominations as low as Rs 1000 and have maturities ranging between one and ten years. Long maturity debentures are rarely issued, as investors are not comfortable with such maturities Debentures enable investors to reap the dual benefits of adequate security and good returns. Unlike other fixed income instruments such as Fixed Deposits, Bank Deposits they can be transferred from one party to another by using transfer from. Debentures are normally issued in physical form. However, corporates/PSUs have started issuing debentures in Demat form. Generally, debentures are less liquid as compared to PSU bonds and their liquidity is inversely proportional to the residual maturity. Debentures can be secured or unsecured. What are the different types of debentures? Debentures are divided into different categories on the basis of: (1)convertibility of the instrument (2) Security Debentures can be classified on the basis of convertibility into: Non Convertible Debentures (NCD): These instruments retain the debt character and can not be converted in to equity shares Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription. Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company. Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue. On basis of Security, debentures are classified into: Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.