GK - Banking & Insurance - SPLessons
boy2

Shares and Debentures

Home > > Tutorial
SPLessons 5 Steps, 3 Clicks
5 Steps - 3 Clicks

Shares and Debentures

shape Introduction

Static GK is one of the important section in both Government Sector and Bank related Exams. In static GK, Banking is one of the important topic. The article Shares and Debentures presents the key points of Shares and Debentures. The article Shares and Debentures can help the students and aspirants to perform well in the exams like IBPS PO, SO, Clerk, SBI, RRB, etc.

shape S & D

Shares and Debentures - S & D:
  • Shares refers to the share capital of the company.

  • It describes the right of the holder to the specified amount of the share capital of the company.

  • Debenture implies a long-term instrument showing the debt of the company towards the external party.

  • It yields a definite rate of interest, issued by the company, may or may not be secured against assets.

Shares and Debentures - S & D - Shares:
  • Smallest division of the company’s capital is known as shares.

  • It represents the portion of ownership of the shareholder in the company.

  • The tiniest part of the company capital is known as a Share.

  • The shares are broadly divided into two major categories: Equity Shares& Preference Shares.

Shares and Debentures - S & D - Debentures:
  • A long-term debt instrument issued by the company under its common seal,to the holder showing the indebtedness of the company.

  • The capital raised by the company is the borrowed capital; that is why the debenture holders are the creditors of the company.

  • They are freely transferable.

  • The return on debentures is in the form of interest at a fixed rate.

  • Debentures are secured by a charge on assets, although unsecured debentures can also be issued.

  • They do not carry voting rights.

The debentures are of following types:
    1. Secured Debentures
    2. Unsecured Debentures
    3. Convertible Debentures
    4. Non-convertible Debentures

Basis Shares Debentures
Meaning Shares are the owned funds of the company. Debentures are the borrowed funds of the company.
What is it ? Shares represent the capital of the company. Debentures represent the debt of the company.
Holder The holder of shares is known as shareholder. The holder of debentures is known as debenture holder.
Status of Holders Owners Creditors
Form of Return Shareholders get the dividend Debenture holders get the interest.
Payment of return Dividend can be paid to shareholders only out of profits. Interest can be paid to debenture holders even if there is no profit
Voting Rights The holders of shares have voting rights. The holders of debentures do not have any voting rights
Conversion Shares can never be converted into debentures. Debentures can be converted into shares.
Repayment in the event of winding up Shares are repaid after the payment of all the liabilities. Debentures get priority over shares, and so they are repaid before shares.
Shares and Debentures - S & D - Equity Share & Preference Share:
Equity Shares:
  • These are the shares which carry voting rights & on which the rate of dividend is not fixed.

  • They are irredeemable in nature.

  • In the case of winding up of the company equity shares are repaid after the payment of all the liabilities.

Preference Shares:
  • These are the shares which do not carry voting rights, but the rate of dividend is fixed.

  • They are redeemable in nature.

  • In the case of winding up of the company, preference shares are repaid before equity shares.

Basis Equity Share Preference Share
Meaning These are the ordinary shares of the company representing the part ownership of the shareholder in the company These are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital.
Payment of dividend The dividend is paid after the payment of all liabilities. Priority in payment of dividend over equity shareholders.
Repayment of capital In the event of winding up of the company, equity shares are repaid at the end In the event of winding up of the company, preference shares are repaid before equity shares.
Rate of Dividend Fluctuating Fixed
Redemption No Yes
Voting rights Equity shares carry voting rights. Normally, preference shares do not carry voting rights. However, in special circumstances, they get voting rights
Convertibility Equity shares can never be converted. Preference shares can be converted into equity shares
Shares and Debentures - S & D - Deferred shares:
  • These shares are those shares which are held by the founders or pioneer or beginners of the company.

  • They are also called as Founder shares or Management shares.

  • In deferred shares, the right to share profits of the company is deferred, i.e. postponed till all the other shareholders receive their normal dividends.

Shares and Debentures - S & D - Bonus Shares:
  • Bonus shares are those shares which are issued by the company free of charge as a bonus to the shareholders.

  • They are issued to the existing shareholders in proportion to their existing shareholdings.

  • It is a kind of gift to the shareholders of the company.
Shares and Debentures - S & D - Share Capital:
Authorized Share Capital:
  • It is the maximum amount of capital which can be issued by a company.

  • It can be increased from time to time.

Issued Share Capital:
It is that part of authorized capital which is offered to investors.
Subscibed Share Capital:
It is that part of Issued capital which is accepted and agreed by the investor.
Paid Up Capital:
  • It is the part of subscribed capital, the amount of which is paid by the investor.

  • Normally, all companies accept complete money in one shot and therefore issued, subscribed and paid capital becomes one and the same.

  • Conceptually, paid-up capital is the amount of money which is actually invested in the business.
Hide Index Show Index