Following are some main advantages/merits of raising funds by issuing shares: (i) Absence of fixed Liability. The company does not guarantee the rate of dividend on equity shares, so it has not fixed liability as in the case of debentures. In case of cumulative preference shares also dividends are not paid out of loss.

What advantages does issue of debentures provide over the issue of equity shares?

Merits of Debentures over Equity Shares (i) Debentures are preferred by investors who want fixed income at lesser risk. (ii) Debentures are fixed charge funds and do not participate in profits of the company. (iii) The issue of debentures is suitable in the situation when the sales and earnings are relatively stable.

What are the advantages of raising capital by issuing shares?

Benefits for Issuing Companies For businesses, issuing common shares is an important way to raise capital to fund expansion without incurring too much debt. While this dilutes the ownership of the company, unlike debt funding, shareholder investment need not be repaid at a later date.

What is the benefit of debentures?

The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending. Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.

What is difference between shares and debentures?

Share is the capital of the company, but Debenture is the debt of the company. The shares represent ownership of the shareholders in the company. On the other hand, debentures represent indebtedness of the company. The income earned on shares is the dividend, but the income earned on debentures is interest.

Why are debentures a good way to raise money?

They are very crucial for raising long-term debt capital. A company can raise funds through the issue of debentures, which has a fixed rate of interest on it. The debenture issued by a company is an acknowledgment that the company has borrowed an amount of money from the public, which it promises to repay at a future date.

What are the advantages and disadvantages of a secured debenture?

Secured debenture creates a charge on the assets of the company, thereby mortgaging the assets of the company. Unsecured debenture does not carry any charge or security on the assets of the company. 2. Registered and Bearer: A registered debenture is recorded in the register of debenture holders of the company.

How does issue of debentures affect share capital?

Issue of Debentures does not alter the company’s share capital and voting right pattern; The stamp duty payable on the issue of debentures is 0.05%, which is less than the amount of stamp duty payable on the shareholder loan; There is no statutory limit provided for the conversion/ redemption of unsecured debentures;

When is a good time to issue a debenture?

(viii) Even during depression, when stock market sentiment is very low, a company may be able to raise funds through issue of debentures or bonds because of certainty of income and low risk to investors. It is not only the company but also the investors who are benefited by investing in debentures or bonds.