COMPANY LAW

DIFFERENCE BETWEEN SHARE HOLDER AND DEBENTURE

HOLDER

NAME :RITHICK ROSHAN.A

REG.NO. :18BLA1070
SHARE HOLDER

A shareholder can be an individual or entity - such as a company or organization - that owns

stocks in a particular company. If you invest in the stock market, you're already considered a
shareholder, or what is also referred to as a stockholder.Shareholders, as part owners of a com-
pany, also have the right to vote in some cases regarding matters of the company and can re-
ceive dividend payouts when the company is doing well financially."A shareholder is one who
owns a share of stock in the company. "The rights of a shareholder are many, and include the
right to attend shareholders' meetings and vote in proxy elections. A shareholder also has the
right to see corporate records, inspect the corporation's premises, receive notice of stockholder
meetings, and be paid dividends."

DEBENTURE HOLDER

Now, as you already saw above, a company, if it chooses to, can raise funds by issuing debt in-
struments. One such debt instrument that many companies prefer to issue is debentures. A com-
pany, when it wants to borrow money from the public, issues debentures. 
And in return, it pays a fixed rate of interest on the borrowing to the holders of debentures on a
regular basis. Once the tenure of the borrowing is over, the company would then redeem the
debentures by returning the principal back to the borrowers. 

RIGHTS OF SHARE HOLDER

 To receive  the share certificates, on allotment or transfer (if opted for transaction in physical
mode) as the case may be,  in due time.
 To receive the share certificates on rematerialisation in due time.
 To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss Ac-
count and the Auditor’s  Report.
 To participate and vote in general meetings either personally or through proxy
 To receive dividends in due time once approved in general meeting.
 To receive corporate benefits like rights, bonus etc. once approved.
 To apply to Company Law Board (CLB) to call or direct the calling of Annual General Meet-
ing (as per provisions of Companies Act, 1956)
 To inspect  the minute books of the general meetings Register of Members, Register of Con-
tracts, Register of Investments and to receive  extract  thereof  upon payment of requisite fee.
 To proceed against the Company  by way of civil or criminal proceedings, if need be.
 To apply for the winding up of the company ( as provided in the law).
 To receive the residual proceeds, in case if a company is wound up.
 To make nomination in respect of shares held by you.     

RIGHTS OF DEBENTURE HOLDER

 To receive interest / redemption in due time

 To receive a copy of the trust deed on request
 To apply for winding up of the company if the company fails to pay its debt.
 To approach the Debenture Trustee with your grievance, if an
TYPES AND IMPORTANCE OF SHARE HOLDER
There are basically two types of shareholders: the common shareholders and the preferred
shareholder/Common shareholders are those that own a company’s common stock. They are
the more prevalent type of stockholders and they have the right to vote on matters concerning
the company.

 Company operations

While stockholders directly influence company operations by way of appointing senior office

personnel, they also influence a company’s operations in other ways. For instance, most investors

prefer to invest in stocks that can meet their earning-expectations, thus keeping companies under

constant pressure to meet their sales and profit projections

 Financing a company

Companies receive financing from stockholders in lieu of ownership rights. Start-ups and private

companies can also raise capital by way of private placements or share issues to select institu-

tions and individuals.

IMPORTANCE

Debentures as a source of finance suit companies which have regular earnings to service the
debt, have higher proportion of fixed assets in their assets structure which offers adequate secur-
ity and motivates investors.
The company has to ensure maintenance of prudent debt equity ratio.
Support from investment institutions is adequately available. LIC, UTI, GIC and others have
been in field to invest public funds in the debenture issues;
Emergence of institutions acting as trustees for debentures holders have reposed confidence in
the investing public for the security of their money and safeguard of their interest as creditors;
Institutional underwriters, merchant banks in public and private sector have come up to render
successful underwriting services to the investor as well as the needy companies;
 Investors preference to high yielding securities with minimum risk has encouraged issue of
debentures by the companies.
DIFFERENCE
SHARE HOLDER DEBENTURE HOLDER
The shareholders have the right to control and Like shareholder, the debenture holders have
interference in the company's affairs. no control in the company's affairs

The shareholders are entitled to get dividends

only out of profit.
The shareholder cannot be paid up as long as
the company is a Going Concern.
The debenture holders are entitled to a fixed
rate of interest, whether the company runs on
profit or loss.
Except in case of perpetual debenture holders,
the company can pay back the debenture
holders

The shareholders are paid back only after all
other claims have been paid.
Shareholders interest in the company is
placed later to debenture holder.
ordinarily, A debenture holder being a secured
creditor, in winding up, is paid as a Priority
Being secured creditors, debenture holders are
paid- off first in the event of company liquida-
tion

Receive annual reports copy including finan- Not entitled to receive annual reports of the
cial statements of the company company

Shares held by the shareholders can't be con- Conversion of debenture to equity is possible
verted into debentures

Board of directors representative of the share- Not responsible for the manager.
holders control and regulate company affairs

CASE LAW

Cgt vs Raghu Hari Dalmia on 15 October, 2001

In support of the reference petition, the learned counsel for the revenue submitted that shares are
goods and immovable property, which are transferable. The Tribunal was not justified in holding
that the conversion of equity shares into preference shares was a unilateral act. Transfer of prop-
erty under the Act means any disposition, conveyance, assignment, settlement, delivery, payment
or other alienations and includes inter alia any transaction entered into by a person with intent
thereby to directly or indirectly diminish the value of his own property and to increase the value
of the property of another person. On conjoint reading of the provisions of the Companies Act,
1956 and the Act, shares or even interest of shareholder can be subject matter of transfer and
charge under the Act. A company and a shareholder are two distinct persons and legal entities.
They are competent to enter into contract and transfer property between them. Redemption of
preference shares by a company has been held to be a transfer, for the purpose of capital gain un-
der the 1961. Further when a face value of a share is reduced, on payment of money by the com-
pany to a shareholder, the rights of the said shareholder diminish and get reduced. There is re-
duction in right to get dividend and distribution of net assets on liquidation proportionately to
the reduction of capital. The voting right of the shareholder also gets reduced with a reduction
in the value of the vote of the assessed in the event of there being a poll. Conversion can be ef-
fective only through a process of reduction of capital as provided under sections 100, 104 and
some other provisions of the Companies Act. Equity shares held by the assesseds were trans-
ferred to the company and the assesseds in exchange or as consideration of this transfer received
cumulative preference shares. This cannot be treated as a unilateral transaction. Two parties were
involved. The rights of preference shareholders are not the same as those of equity sharehold-
ers, therefore, assesseds had given up several rights, which were available as the equity share-
holders. Though the Tribunal held that rule 10(2) could have been made applicable and even if it
was held that the valuation made by the assessing officer was at a higher figure that parse was
not a ground to accept assesseds' contention regarding non-increase in the value. Rule 10(2) is
not mandatory and the manner of calculation of market value is not stated in rule 10(2). Rules of
valuation are procedural in nature and have to be given retrospective effect. Schedule II of the
Act was inserted by the Direct Tax Laws (Amendment) Act, 1989. The said Schedule incorpor-
ated as procedural rule and partakes character of a rule of evidence, therefore, Schedule 11 is ap-
plicable to all pending proceedings and could have been applied.