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Shares vs. Debentures: What's the Difference?

Edited by Sawaira Riaz || By Sumera Saeed || Updated on October 19, 2023
Shares represent ownership in a company, whereas debentures are debt instruments issued by a company.

Key Differences

Shares are essentially a slice of ownership in a company. When someone buys shares, they are buying a piece of the company and become a shareholder. Debentures, on the other hand, represent a loan made by the investor to the company. While shares come with ownership rights, debentures come with lending rights.
Sumera Saeed
Oct 19, 2023
Shares provide the holder with a claim on the company's profits, typically in the form of dividends. The dividends on shares can be variable, depending on the company's profitability. Debentures, conversely, provide the holder with a claim to interest payments, which are typically fixed and predetermined.
Sumera Saeed
Oct 19, 2023
Shares offer the potential for capital appreciation if the company's stock price goes up. The value of shares can be volatile, as they are influenced by various market factors. Debentures offer a return in the form of interest payments, and their value is generally more stable, since they are influenced mainly by interest rates.
Sumera Saeed
Oct 19, 2023
When it comes to the hierarchy of claims, shares are considered equity, which means shareholders are last in line to be paid in case the company goes bankrupt. Debentures are a form of debt, so debenture holders are paid before shareholders in the event of a company's liquidation.
Sumera Saeed
Oct 19, 2023
The risk associated with shares is generally higher than that of debentures. While shareholders might earn high returns if the company performs well, they also face the risk of losing their investment if the company underperforms. Debenture holders, being creditors, have a higher claim and thus face comparatively lower risk, but they also have a capped return in the form of interest.
Sumera Saeed
Oct 19, 2023
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Comparison Chart

Nature

Ownership in the company
Debt instruments
Sumera Saeed
Oct 19, 2023

Return

Dividends (variable)
Interest (fixed)
Sumera Saeed
Oct 19, 2023

Risk

Higher (variable returns)
Lower (fixed returns)
Sumera Saeed
Oct 19, 2023

Claim Priority

Last in case of liquidation
Before shareholders
Janet White
Oct 19, 2023

Price Stability

More volatile
More stable
Sara Rehman
Oct 19, 2023
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Shares and Debentures Definitions

Shares

A unit of ownership in a company.
I bought 50 shares of Apple today.
Harlon Moss
Oct 19, 2023

Debentures

A long-term loan certificate issued by a company.
The company issued debentures to raise capital.
Harlon Moss
Oct 19, 2023

Shares

A portion of a company's equity capital.
He holds significant shares in the startup.
Janet White
Oct 19, 2023

Debentures

Tradable debt securities in the financial market.
He traded his debentures in the stock market today.
Sara Rehman
Oct 19, 2023

Shares

A claim on a company's earnings and assets.
The shares I own entitle me to dividends.
Harlon Moss
Oct 19, 2023

Debentures

A debt instrument not secured by physical assets.
These debentures are unsecured, relying on the company's creditworthiness.
Harlon Moss
Oct 19, 2023

Shares

Represents a shareholder's voting rights.
With more shares, you have greater influence in company decisions.
Sawaira Riaz
Oct 19, 2023

Debentures

Provides periodic interest payments to the holder.
I receive a 5% interest yearly from my debentures.
Sara Rehman
Oct 19, 2023

Shares

Tradable securities that can appreciate or depreciate in value.
The value of my shares doubled in a year.
Harlon Moss
Oct 19, 2023

Debentures

Represents a fixed charge on the company's earnings.
The company must honor its debenture commitments before dividends.
Sawaira Riaz
Oct 19, 2023

Shares

A part or portion belonging to, distributed to, contributed by, or owed by a person or group
The pirates argued over their shares of the treasure.
Sumera Saeed
Aug 26, 2017

Debentures

A certificate or voucher acknowledging a debt.
Sumera Saeed
Aug 26, 2017

Shares

An equitable portion
Do one's share of the work.
Sumera Saeed
Aug 26, 2017

Debentures

An unsecured bond issued by a civil or governmental corporation or agency and backed only by the credit standing of the issuer.
Sumera Saeed
Aug 26, 2017

Shares

One of the equal parts into which the capital stock of a company is divided
Bought 200 shares of the company's stock.
Sumera Saeed
Aug 26, 2017

Debentures

A customhouse certificate providing for the payment of a drawback.
Sumera Saeed
Aug 26, 2017

Debentures

Plural of debenture
Sumera Saeed
Aug 26, 2017

FAQs

Are debentures secured?

Some debentures are secured by assets, while others are unsecured.
Sumera Saeed
Oct 19, 2023

What are debentures?

Debentures are long-term debt instruments issued by a company.
Sawaira Riaz
Oct 19, 2023

How do shareholders earn money?

Shareholders earn through dividends and by selling shares at a higher price than purchased.
Harlon Moss
Oct 19, 2023

How do shares differ from debentures?

Shares signify ownership, while debentures represent borrowed capital.
Sumera Saeed
Oct 19, 2023

Who has a higher claim in case of company liquidation?

Debenture holders have a higher claim than shareholders.
Janet White
Oct 19, 2023

What happens if a company defaults on its debenture payments?

Legal action can be taken by debenture holders.
Aimie Carlson
Oct 19, 2023

What are shares?

Shares represent a unit of ownership in a company.
Sumera Saeed
Oct 19, 2023

Do shares provide fixed returns?

No, returns on shares, called dividends, can be variable based on company performance.
Aimie Carlson
Oct 19, 2023

Are debentures transferrable?

Yes, debentures can be bought or sold in financial markets.
Sumera Saeed
Oct 19, 2023

Can a company issue both shares and debentures?

Yes, companies often have a mix of equity (shares) and debt (debentures).
Sumera Saeed
Oct 19, 2023

Are all debentures long-term?

Most are long-term, but there can be short-term debentures as well.
Aimie Carlson
Oct 19, 2023

Can shares be traded?

Yes, shares are often traded on stock exchanges.
Janet White
Oct 19, 2023

What influences share prices?

Multiple factors, including company performance, industry trends, and market sentiment.
Sumera Saeed
Oct 19, 2023

How is the interest rate for debentures determined?

It's based on the company's creditworthiness and prevailing market rates.
Sumera Saeed
Oct 19, 2023

Do all shares carry voting rights?

Not necessarily; there are both voting and non-voting shares.
Janet White
Oct 19, 2023

Do shareholders have a say in company management?

Yes, shareholders typically have voting rights based on their shares.
Sumera Saeed
Oct 19, 2023

What do debenture holders get in return?

Debenture holders receive periodic fixed interest payments.
Sara Rehman
Oct 19, 2023

Which is riskier - shares or debentures?

Shares generally carry higher risk due to variable returns.
Sumera Saeed
Oct 19, 2023

Is it common for individual investors to buy debentures?

Yes, debentures are a popular fixed-income investment for many individual investors.
Sumera Saeed
Oct 19, 2023

Is the interest on debentures guaranteed?

Yes, unless the company defaults.
Aimie Carlson
Oct 19, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.

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