About Shares and Debentures
Companies can acquire business finance by issuing shares and debentures.
Definitions:
Shareholder: A part-owner of a company
Debenture Holder: Someone who has loaned a company money
Debentures are also as known as loan capital because they are way for a business to gain finance through long term borrowing. The loan is normally assured against company assets and the lenders receive a fixed rate of interest on the amount they lend to a company with the entire sum being paid back to them by an agreed date. They are outside the company and therefore have no say in how the business is run.
Shares
Shareholders own a share of a company. Public companies (PLC's) can sell their shares to the
general public through the Stock Market whilst private limited companies (Ltd) must sell shares privately.
Types of Shares:
Ordinary Shares
Also called equities. Holders of these shares have a voice in the business - i.e. are able to
express their opinions at the shareholders meetings. They get a share of the company's profits after tax
in the form of a dividend. However, they will only be paid their share once preference
shareholders have been paid.
Preference Shares
Most preference shareholders do not have a right to vote at shareholders meetings. They do, however, have a
fixed rate of dividend - i.e. they receive a certain percentage of the company's profits.
4: Where Do Businesses Get Money?
5: Sources of Finance for the Public Sector
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