Understand the difference between shareholder and debenture holder
For a company, there are two different ways through which it can raise funds - by issuing shares or by issuing debt instruments. While the end goal of both of these ways is the same, there are plenty of fundamental differences between the both of them. One such difference has to do with the holders of the company’s shares or debt instruments. And that’s exactly what we’re going to be looking at in this article.
As the name itself implies, anybody who owns the shares of a company is termed as a shareholder. Here’s an interesting fact for you. The owner of the shares need not just be an individual. In some cases, other companies and even partnership firms own the shares of a company. Since they own parts of the company, shareholders are widely referred to as owners of the company.
- Who are debenture holders?
Now, as you already saw above, a company, if it chooses to, can raise funds by issuing debt instruments. One such debt instrument that many companies prefer to issue is debentures. A company, when it wants to borrow money from the public, issues debentures.
And in return, it pays a fixed rate of interest on the borrowing to the holders of debentures on a regular basis. Once the tenure of the borrowing is over, the company would then redeem the debentures by returning the principal back to the borrowers.
- What is the difference between a shareholder and debenture holder?
As you can see by now, shareholders and debenture holders are fundamentally different. That said, their differences extend far beyond just being the holders of their respective instruments. Here’s a quick look at a few of the differences between these two types of holders.
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Shareholders
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Debenture holders
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Shareholders are the owners of the company.
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Debenture holders are merely lenders to the company and are considered to be creditors.
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Shareholders actively participate in the decision making process of the company.
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Debenture holders cannot participate in the decision making process.
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Shareholders are entitled to receive dividends, which is basically a share in the profits of the company.
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Since they have lent money to the company, debenture holders are entitled to receive interest.
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Despite generating profits, a company may choose not to pay dividends to its shareholders.
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Whether it generates profits or not, a company is obligated to pay interest to its debenture holders.
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Conclusion
Well, there you have it; the difference between a shareholder and debenture holder. Now, irrespective of whether you want to invest in the shares of a company or its debt instruments, possessing a demat account is mandatory. Visit the website of Motilal Oswal to open a demat account online within minutes.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account
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