Differentiate between preference shares and debenture.


The major differences between preference shares and debenture are as follows −

Preference sharesDebentures
  • 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.

Updated on: 24-Jul-2020

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