Question based on Annamalai University Assignment Solution and other course
Answer:
The debentures carry a fixed rate of interest, which is to be paid by the company, irrespective of profits. Normally, debentures are secured. Companies offer collateral security to debenture holders to make then comfortable from the view point of security. Debenture holders are unlikely to suffer from the financial failure of the company, in case they are secured and enough money is realized at the time of sale.
Equity shares bear the highest risk as it does not give any guarantee of dividend payment. In case of loss, the equity shareholders do not get any dividend at all. The equity shareholders hardly get back their money when the company goes for liquidation because most of the money would have disappeared from the company towards losses by the time. The dissimilarities between shares and debentures are given as under.
Table 1 Difference Between Shares and Debentures
