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Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)
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Difference between Shares and Debentures

Last Updated : 21 Apr, 2025
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Issuing of Shares and Debentures are two of the most prominent source of finance for any business. By issuing shares and debentures, any public company can generate finance from the market. Finance required by the business to establish and run its operations is known as Business Finance. No business can function without an adequate amount of funds for undertaking various activities. To be able to produce goods or provide services, any business needs money.

Difference between Shares and Debentures

What is a Share?

A Share is a unit of small denominations that sum up to form a capital. The company's capital is divided into smaller portions or units that represent the company's ownership percentage. Each such unit is called a share. Section 2(84) of the Companies Act, 2013 defines "A share is the interest of a member in a company." For Example: If the Capital of the company is ₹20,00,000, divided into 2,00,000 units of ₹10 each. Each such unit of ₹10 will be called a Share.

 The share shows the claim of the shareholder in the equity of the company. The purpose of dividing the capital into shares is to raise the fund conveniently required by the company. The shares are movable and transferable property that can be exchanged easily. A share of the public company is freely traded at the Stock Exchange, and is considered good under The Sales Of Goods Act, 1930. The value of the share is subject to change depending upon various market factors and the value keeps on fluctuating. The shares are broadly classified under two categories:

  • Equity Shares               
  • Preference Shares

What is a Debenture?

A Debenture is a long-term debt instrument issued by a company to borrow a fund from the market. Debentures are a form of debt capital. A Debenture carries a fixed rate of interest called a ' Coupon Rate', which is paid at a specific date, whether a company makes a profit or a loss. It is a good source of finance for companies that do not want to dilute their equity or lack collateral for the Loan. A Debenture issued by the company is in form of a certificate, given under the common seal of the company. A debenture certificate states the Principal amount lent by the investor, the rate and terms of interest payment, and the terms of repayment of the principal amount at a specific period.

As per Section2(30) of the Companies Act, 2013, "Debenture includes debenture stock, bonds or any other securities of a company, whether constituting a charge on the assets of the company or not." The Companies Act further states that no company is allowed to issue debentures having a maturity period of more than 10 years from the date of issue. However, infrastructure companies can issue debentures for more than 10 years but not exceeding 30 years.

 Difference between Share and Debenture

Basis

Shares

Debentures

Meaning

A share is a unit(a part) of the capital of the company.A debenture is a debt instrument issued to raise a borrowed fund.

Nature

A share form an Equity capital.A debenture form a debt capital.

Holder

A holder of a share is known as a shareholder.A holder of a debenture is known as a debenture holder.

Return

A shareholder earns a dividend in return for their investment.A debenture yields a fixed rate of interest(coupon rate) at a specified date.

Dividend and Interest Payment

A dividend is paid only when there is a profit.An interest on debenture is paid irrespective of whether the company is making a profit or incurring a loss.

Voting Rights

A shareholder enjoys the right to vote at the company's meeting.A debenture holder has no right to participate or cast a vote at the company's meeting.

Redemption

A company, at its option, can buy back its own shares. A debenture shall be redeemed at a fixed maturity date.

Conversion

A share cannot be converted into debenture.A debenture can be converted into shares as per the term of the issue.

Priority of Repayment

At the time of winding up, payment to shareholders is made after the repayment to a debenture holder.At the time of winding up, payment to the debenture holder is made before the payment to the shareholders.

Issue at Discount

Section 53 of the Companies Act restricts the issue of shares at discount, except for the sweat equity shares.A debenture can be issued at discount without any restrictions.

Degree of Risk

High degree of risk is borne by the equity shareholders.Debentures are the debt for the companies, hence debenture holders bear little risk. 

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Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)

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    What is Joint Life Policy?Joint Life Policy is a life policy that gives coverage against the death of the policyholder, under which the coverage is of a minimum of two persons and the pay-out is on a first-death basis. Since the Partnership firm is a business run by at least two people, the partners
    3 min read
    Accounting Treatment of Contingent Assets and Contingent Liabilities in case of Dissolution of a firm
    Contingent Assets: A Contingent Asset is an economic gain that may come into existence in near future as a result of some past action. The existence of such assets is completely uncertain and beyond the control of the entity. Example: Any property of a firm under some legal suit, and warranty receiv
    3 min read

    Part-B

    Chapter 1: Accounting for Share Capital

    Company and its Types
    A company is one of the most important and prominent forms of business organization. It can be described as a voluntary association of individuals, having a common purpose, who agree to pool their funds and unite to achieve the said goals. It can be called an artificial person created under the juri
    7 min read
    Shares : Meaning, Nature and Types
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Preference Shares and Equity Shares
    Life-blood of any business is finance. Sufficient finance for the company helps to grow and expand the company. The financial needs of any business are concerned with the acquisition and utilisation of funds. It is done through planning, acquiring, utilising, managing, and controlling funds in conne
    5 min read
    Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Capital Reserve and Reserve Capital
    Capital Reserve and Reserve Capital are most often confused same. However, the former is a reserve created out of the Capital Profits of a firm; whereas, the latter is a part of the increased nominal capital or uncalled share capital of an organisation which shall not be called up, except in the eve
    3 min read
    Accounting for Share Capital: Issues of Shares for Cash
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    9 min read
    Issue of Shares At Par: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read
    Issue of Shares at Premium: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Issue of Share for Consideration other than Cash: Accounting for Share Capital
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Issue of Shares: Accounting Entries on Full Subscription with Share Application
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    2 min read
    Calls in Arrear: Accounting Entries with Examples on Issue of Shares
    Calls in Arrear refer to the amount of money that a shareholder has not yet paid to a company on shares they have agreed to purchase. In the context of a company issuing shares, the payment for these shares is often requested in installments, known as "calls." If a shareholder does not pay an instal
    4 min read
    Calls in Advance: Accounting Entries with Examples on Issue of Shares
    Calls in Advance is the amount of future calls which is received by the company in advance. Calls in Advance is just opposite to Calls in Arrear. It is a situation when the shareholders of a company pay the amount not yet called upon their shares. Section 50 of the Companies Act, 2013 says that the
    4 min read
    Oversubscription of Shares: Accounting Treatment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment with Calls in Arrear
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Forfeiture of Shares : Accounting Entries on Issue of Shares
    What is Forfeiture of Shares?Cancellation of shares of a shareholder who fails to pay the amount due on allotment or on any call within the specific time period is known as Forfeiture of Shares. A company or its directors can forfeit the shares only if its Articles of Association allow for the same.
    5 min read
    Accounting Entries on Re-issue of Forfeited Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    7 min read
    Disclosure of Share Capital in the Balance Sheet: Accounting Entries on Issue of Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read

    Chapter 2: Issue and Redemption of Debentures

    Issue of Debentures: Meaning, Characteristics, Purpose of Issuing Debentures and Example
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    5 min read
    Types of Debentures
    What is Debenture?A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued an
    4 min read
    Difference between Shares and Debentures
    Issuing of Shares and Debentures are two of the most prominent source of finance for any business. By issuing shares and debentures, any public company can generate finance from the market. Finance required by the business to establish and run its operations is known as Business Finance. No business
    4 min read
    Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    2 min read
    Issue of Debenture at Par and Premium
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    3 min read
    Issue of Debentures for Consideration other than Cash
    Issue of Debentures for consideration other than cash means that the company has not received amount (in cash or by cheque) against the debentures issued. Debentures may be issued for consideration other than cash in the following situations:To promoters of the company for rendering services for inc
    4 min read
    Issue of Debenture as Collateral Security
    What is Issue of Debentures as Collateral Security?A company may have to issue debentures as a subsidiary or secondary security in addition to the principal security when it takes a loan from a bank or from other party, this is known as Issue of Debentures as Collateral Security. Collateral security
    3 min read
    Interest on Debentures
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    3 min read
    Redemption of Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
    Redemption of Debentures: Meaning, Sources and Rules regarding Redemption
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    5 min read
    Redemption of Debentures in case of Lump-Sum
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    3 min read
    Redemption of Debentures in case of Installment
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    2 min read
    Redemption of Debentures in case of Purchase of Own Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
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