On the contrary, the obligation implies a long-term tool that shows the company's debt to the outside. Produces a certain interest rate, issued by the company, may or may not be guaranteed against assets, ie stocks.
So, if you plan to invest in one of the two titles, you must first understand their meaning. In this article, we have provided the difference between stocks and bonds in tabular form.
|Sense||The shares are the funds owned by the company.||The bonds are the funds borrowed from the company.|
|What is it?||The shares represent the capital of the company.||The bonds represent the company's debt.|
|Holder||The shareholder known as a shareholder.||The bondholder known as bondholder.|
|Status of the holders||Owners||Creditors|
|Return form||Shareholders receive the dividend.||Bondholders receive interest.|
|Payment of the return||The dividend can be paid to shareholders only for profits.||Interest can be paid to bondholders even if there is no profit.|
|Allowance deduction||The dividend is an appropriation of profit and therefore not allowed as a deduction.||Interest is a business expense and therefore allowed as a deduction from profit.|
|Security for payment||No||s|
|Voting rights||Holders of shares have the right to vote.||Bondholders have no voting rights.|
|Conversion||The shares can never be converted into bonds.||The bonds can be converted into shares.|
|Repayment in the event of liquidation||Shares are redeemed after payment of all liabilities.||The bonds have priority over the shares and are therefore repaid before the shares.|
|quantum||Dividing into shares a profit allocation.||Interest on bonds is a burden on profit.|
|Trust trusted||No trust deed is performed in the event of shares.||When the bonds are issued to the public, the trust deed must be executed.|
Definition of actions
The smallest division of the capital of the company known as shares. The shares are offered for sale in the open market, ie the stock market to raise capital for the company. The rate on which the shares are offered is known as the share price. Represents the portion of ownership of the shareholder in the company. Shareholders are entitled to the dividend (if any) declared by the company on the shares.
The shares are mobile, ie transferable and consist of a distinctive number. The actions are divided into two main categories:
- Actions: shares conferring voting rights on which the dividend rate is not set. They are irredeemable in nature. In case of liquidation of the share capital, the shares are repaid after the payment of all the liabilities.
- Preferred shares The shares that do not confer voting rights, but the fixed dividend rate. They are redeemable in kind. In the event of liquidation of the company, the preference shares are redeemed before the shares.
Definition of obligations
A long-term debt instrument issued by the company under its common seal, to the bond holder showing the company's debt. The capital raised by the company is the borrowed capital; this is why bondholders are the company's creditors. The bonds can be redeemable or irremediable in nature. They are freely transferable. The yield on bonds in the form of fixed-rate interest.
The bonds are guaranteed by a commission on the assets, even if unsecured bonds can be issued. They do not have voting rights. The bonds are of the following types:
- Guaranteed bonds
- Unsecured bonds
- Convertible bonds
- Non-convertible bonds
- Registered bonds
- Bearer debentures
Key differences between stocks and bonds
The following are the main differences between stocks and bonds:
- The shareholder known as a shareholder and the bondholder known as a bondholder.
- Share the company's capital, but Debenture the company's debt.
- The shares represent the property of the shareholders of the company. On the other hand, bonds represent the company's debt.
- The income earned on shares is the dividend, but the income earned on interest bonds.
- The payment of the dividend can be made only with the current earnings of the asset and not otherwise. Unlike interest on the bonds that must be paid by the company to bondholders, no company has made a profit or not.
- The dividend is not a company expense and therefore not allowed as a deduction. Conversely, interest on bonds is an expense and therefore admitted as a deduction.
- In the event of liquidation, the bonds receive priority repayment on the shares.
- Shares cannot be converted unlike convertible bonds.
- No security costs were created for the payment of shares. Conversely, a security fee is created for paying the bonds.
- A fiduciary act is not executed in the event of shares, while the trust deed is executed when the bonds are issued to the public.
- Unlike bondholders, shareholders have the right to vote.
- The shares are issued with a discount subject to legal compliance. The bonds can be issued at a discount without any legal compliance.
Video: Shares Vs Debentures
- Both are financial assets.
- Both can be released to the public.
- Fundraising source for the company.
- They can be issued with the discount.
Since everything has two aspects, actions and obligations also have their merits and demerits. While the shares give voting rights to the shareholders, the bonds become priority in the payment, at the time of the liquidation of the company.