What are shares?

1. A company’s capital is divided into small, equal units of a finite number. Each unit is known as a share. In simple terms, a share is a percentage of ownership in a company or a financial asset. Investors who hold shares of any company are known as shareholders. 
2. Shares are units of equity ownership in a corporation. For some companies, shares exist as a financial asset providing for an equal distribution of any residual profits, if any are declared, in the form of dividends. 

Types of shares

• Preference shares: As the name reflects, this type of share gives certain preferential rights as compared to other types of shares. The main benefits that preference shareholders have are that they get first preference when it comes to the payout of dividend i.e. a share of the profit earned by the company and when the company winds up, these shareholders have the first right in terms of getting repaid. 
• Equity shares: Equity shares are also known as ordinary shares. Most shares issued by the company are equity shares. This type of share is traded actively in the secondary or stock market. These shareholders have voting rights in the company meetings. They are also entitled to get dividends declared by the board of directors. However, the dividend on these shares is not fixed and it may vary year to year depending on the company’s profit. Equity shareholders receive dividends after preference shareholders. 

What is a debenture?

1. A debenture is a marketable security that businesses can issue to obtain long-term financing without needing to put up collateral or diluted equity. A debenture is a type of long-term business debt not secured by any collateral. 
2. Debentures are instruments of debt, which means that debenture holders become creditors of the company. They are a certificate of debt, with the date of redemption and amount of repayment mentioned on it. This certificate is issued under the company seal and is known as a Debenture Deed. 
3. Debentures have a fixed rate of interest and such interest amount is payable yearly or half-yearly. These holders do not get any voting rights. This is because they are not instruments of equity, so debenture holders are not owners of the company, only creditors. The interest payable to this these debenture holders is a charge against the profits of the company. So, these payments must be made in case of a loss also. 
4. Different types of debentures: 
   1. Based on security:  
      • Unsecured Debentures – They do not have a particular charge on the assets of the enterprise. However, floating charge may be established on these debentures by default. Usually, these types of debentures are not circulated. 
      • Secured Debentures – These are that kind of debentures where a charge is being established on the properties or assets of the enterprise for the purpose of any payment. The charge might be either floating or fixed. A fixed charge is established on a static asset (asset not for sale) whereas a floating charge is on the general assets of the enterprise.
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   2. Based on tenure: 
      • Irredeemable Debentures – These debentures are also called perpetual debentures as the company does not give any attempt for the repayment of money acquired or borrowed by circulating such debentures. These debentures are repayable on the closing up of an enterprise or on the expiry of a long period. 
      • Redeemable Debentures – These debentures are those that are due on the cessation of the time frame, either in a lump sum or in instalments during the lifetime of the enterprise. Debentures can be reclaimed either at premium or at par.  
   3. Based on convertibility: 
   • Non-Convertible Debentures – These debentures cannot be changed into shares or in any other securities. Most debenture circulated by enterprises fall in this class. 
     • Convertible Debentures – These debentures are changeable to equity shares or in any other security either at the choice of the enterprise or the debenture holders. These debentures are either entirely convertible or partly changeable. 
   4. Based on coupon rate: 
      • Zero-Coupon Rate Debentures – These debentures do not normally carry a particular rate of interest. 
        Specific Coupon Rate Debentures – Such debentures are circulated with a mentioned rate of interest known as coupon rate.