Shares

The capital of a company is divided into shares.  Each share forms a unit of ownership of a company. Shares are offered for sale as to raise capital for the company.

Shares are of two kinds:

1. Equity share

• Gives the holder the power to share the earnings and profits of the company
• Voting right for the selection of AGM of company
• Owner of equity shares has to bear the profit as well as the loss of the company.

2. Preference shares

• Earns the holder of such share a fixed dividend but no right over the ownership of the company.

Primary Share market : when the shares are offered for sale directly by the company for the first time, they are in the primary market.

Secondary market : Share trading takes place in the secondary market.

Bonds

• Bond is an instrument for raising long term debt on which bond issuee pays periodic interest.
• Bonds could be issued by public or private companies.
• Bonds can have a maturity period or might not have a maturity period.
• Bonds are supported by collateral. [Collateral=immovable property or fixed asset]

Debentures

• Debentures are instrument used by a company to raise long term loan.
• It has a maturity period bearing an interest or coupon rate.
• It may be secured or unsecured by assets (e.g. permanent asset as land etc)
• Debenture holders are provided with prior claims on the earning or interest and assets of the company [in the situation of liquidation of the company] over preference and equity share holders.

Difference between Shares and debentures