Difference between shareholders and debenture-holders are discussed in detail as follows:
1. A shareholder or member is joint owner of the company; but a debenture-holder is only a creditor of the company.
2. A shareholder has a voting right whereas a debenture-holder has no such right at the meeting of the company. Section 117 of the companies act prohibits the issue of debentures carrying any kind of voting rights at general meeting of the company.
3. Interest on debentures is payable whether there are profits or not. But dividend on shares is to be paid only when the company has earned profits. Interest on debentures may be paid out of capital but dividend on shares can never be paid out of capital.
4. Debentures are generally secured and carry a charge on the assets of the company whereas shares have no such charge. The debenture-holder, being a secured creditor of the company, is paid-off prior to a shareholder in the event of winding up of a company.
5. A company can repay the debentures in accordance with the terms of issue but save in the case of redeemable preference shares, the share capital cannot be repaid without legal formalities.
6. Debentures can be issued at a discount whereas shares cannot be issued at a discount except as provided under section79 of the companies act.