Question Tag: Debenture Holders

Key differences between debenture holders and shareholders are as follows:

• Status: Debenture holders are creditors of the company, not members, and therefore have no right to attend and vote at general meetings of the company, whereas shareholders are members and have voting rights. (1.5 marks)
• Issuance of Shares/Debentures: Shares must not generally be issued at a discount to shareholders, while this prohibition does not apply to debentures. (1.5 marks)
• Repurchase: A company is generally prohibited from purchasing its own shares, whereas there is no such prohibition on a company from purchasing its own debentures. (1.5 marks)
• Payment of Interest/Dividends: Interest on debentures must be paid when due, either out of capital or profits, while dividends can only be paid out of profits, not capital. (1.5 marks)

(Total: 6 marks)