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.
- 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 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
|Provides ownership of company||Are creditors who provide loan to the company|
|No certainty of return in case of loss (for share holders)||Receives interest even if there is no profit|
|Shares cannot be converted to debentures||Debentures can be converted to shares|
|Have the right to participate and vote in company meetings||No such powers|