What are shares capital and debentures in company law?
Asked by: Layla Stiedemann | Last update: June 28, 2026Score: 4.7/5 (15 votes)
Share capital represents funds raised by a company through ownership shares, making investors part-owners entitled to dividends. Debentures are debt instruments representing borrowed capital, making investors creditors entitled to fixed interest. Both are transferable movable properties essential for financing corporate operations.
What do you mean by share capital and debentures?
Shares and debentures are two popular methods companies use to raise capital. While shares represent a portion of the company's equity capital and grant ownership rights, debentures are debt instruments used to secure borrowed capital.
What are the 4 types of securities?
The four main types of financial securities are equity, debt, derivatives, and hybrid securities. These instruments represent either ownership, debt, or a contract based on an underlying asset, designed for trading in financial markets to offer income, capital appreciation, or risk management.
What are the 4 types of share capital?
The four main types of share capital are authorized, issued, subscribed, and paid-up. Authorized share capital is the maximum value of shares a company is legally permitted to issue, as stated in its constitutional documents (such as the Memorandum of Association in India or the Articles of Incorporation in the US).
What is the difference between shares and debentures in company law?
Shares represent ownership in a company, while debentures represent debt owed by a company. Shareholders are owners and have voting rights, while debenture holders are creditors without voting rights.
Company Law: Shares and Shareholders in 3 Minutes
Is a debenture the same as a share?
Shares are company-owned equity and are a form of a capital asset. Debentures are a form of loan taken out by the company and fall under payable liabilities or debt. Shares are directly impacted by market volatility.
What is share capital in simple terms?
Share capital is the total amount of money a company raises by selling shares (ownership) to investors, often used to start or grow the business. It represents the initial cash or assets owners have invested, which does not have to be paid back like a bank loan.
What does Warren Buffett say about bonds?
Warren Buffett considers long-term bonds a "terrible" and potentially dangerous investment for investors with a long time horizon, famously stating he would choose equities over bonds "in a minute". He argues that inflation erodes the purchasing power of fixed-income holdings, making stocks less risky and more profitable over the long term.
What is the 15 * 15 * 30 rule?
The 15-15-30 rule is a long-term investment strategy, often called the "15x15x30 rule," designed to build a large corpus through Systematic Investment Plans (SIPs).
Why do rich people buy bonds?
Investors buy bonds because: They provide a predictable income stream. Typically, bonds pay interest on a regular schedule, such as every six months. If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing.
What are the five types of shares?
Five types of shares
- Ordinary shares (most common type)
- Preference shares.
- Redeemable preference shares.
- Convertible preference shares.
- Treasury shares.
What are the 5 types of capital?
The Five Capitals model (often used in sustainability) identifies five types of capital—Natural, Human, Social, Manufactured, and Financial—that organizations must manage to create long-term value. These resources ensure holistic success beyond just financial profit.
Where is share capital on a balance sheet?
It appears within the equity section of your balance sheet and is calculated as the number of issued shares multiplied by their nominal value (for example, 100 ordinary shares at £1 nominal value = £100 share capital). A few key points to keep in mind: Share capital reflects the nominal value only.
Why do companies issue debentures?
A debenture is a type of debt instrument issued by companies to raise capital. It is not secured by physical assets or collateral. Debentures promise to pay interest and principal to the debenture holders. Companies issue debentures to investors, and these investors become creditors of the company.
Can a company have more than one debenture?
Can I have more than one debenture registered on my company? Yes, that is possible. The debentures then usually rank in order of the date created, unless one lender has given another a deed of priority.
Are shares riskier than debentures?
Shares are a highly risky form of investment as they are greatly affected by market volatility. Debentures are relatively less risky than shares. Also if the debentures are secured and backed by an asset of the company, debenture holders are further assured of their investment.
Are shares or debentures easier to sell?
In terms of liquidity, shares are typically more easily tradable on stock exchanges, making them highly liquid compared to most debentures, which may be traded less frequently and are often held to maturity.
Can debentures be converted into shares?
They can be converted into equity shares. Shareholders can convert debentures into equity shares. This conversion gives security to the holder. And this security can balance the risk of investing in unsecured debt.