Differentiate between preference shares and debenture.
The major differences between preference shares and debenture are as follows −
Capital funds of the company.
Represents capital of the company.
Shareholders are owners.
Paid out of profits earned.
Indirectly dilute the control of existing shareholders.
Dilution in profit sharing percentage.
Not tax deductible expenses.
No tax benefits on preference capital.
Effect on authorised capital.
Blockage of funds is required to increase authorised capital.
Borrowed funds of the company.
Represents debt of the company.
Shareholders are creditors.
Interest paid irrespective of profits.
Doesn’t dilute the control of existing shareholders.
No dilution of profit sharing percentage.
Tax deductible expense.
Have tax shield.
No effect on authorised capital.
No blockage of funds to increase authorised capital.
Published on 24-Jul-2020 07:12:56