Debentures are fixed charge funds and do not participate in profits of the company. April 26, 2013. Unsecured bondholders are paid before shareholders, so investors feel more secure since debentures are anyways not secured. Financing through debentures is cost-effective for companies since the interest payment is tax-exempt. Difference between Preference Shares and Debentures: Although there are also some similarities between preference shares and debentures yet, for the time being, to understand the head to head differences between both preference shares and debentures, we should consider the advantages and disadvantages in terms of various key features. Advantages of Preference Shares: (1) Since the rate of return is guaranteed, the investors who prefer safety of their capital and want to earn with greater certainty prefer to invest in these shares. l No maturity: Equity shares do not have maturity period. Companies agree to pay preferred shareholders dividends before dividends to common shareholders. Debentures have higher seniority for liquidation repayment than preferred shares, but may pay lower yields. … Examples of debt capital include debentures, bonds, commercial papers and letters of credit. Secured bonds fall within a class of their own and can be identified by the collateral associated with the bond. A debenture is a type of debt — issued by governments and corporations — that lacks collateral, and is therefore dependent on the creditworthiness and reputation of the issuer. Excellent source of funds for expansion and project-related purposes without increasing the share capital. At the time of liquidation, shares have a residual interest over the asset, left after the repayment of all dues and payables. Full stock is a stock with a par value of $100 per share. (2) Help companies in raising their long term capital. Each share represents a tiny ownership piece of the corporation, and people who buy the shares receive the right to benefit from their ownership stake. Shares forms ownership of the company, where as Debentures are the debt for any company. In case, the shareholders have fully paid-up shares, they are not liable to anyone. The following are some of the advantages of Preference Shares. It is a hybrid security because it has some features of equity shares as well as some features of debentures. The company can thus maximize the profits that are accessible on the part of preference shareholders. 3. CS with equity shares, preference shares and debentures. Debentures on the basis of Priority 1. May be a way to grow the business over a long period of time at a fixed low cost Preference shares are the source of long term financial requirements whereas debentures are the sources of short to medium term finance. Xem và tải ngay bản đầy đủ của tài liệu tại đây (1 MB, 237 trang ) 206 Accounting and Financial Management for I.T. A debenture can be less risky than preferred shares but will also typically have a lower expected return. l Over capitalization: As equity capital cannot be redeemed, there is a danger of over capitalization. Debenture holders will be paid before preferred shareholders but may be subordinate to other types of debt on the company’s books such as senior loans. Financing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible. Both securities can be used to raise capital. Below are the advantages and disadvantages of debentures. Advantages of Preference Shares from the Investor’s Point of View. Each liquidation is different and will affect the final payout to a debenture holder. 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