Shares and Debentures

A firm can issue various types of shares such as equity shares, preference shares and deferred shares. According to Companies Act 1956, a public company cannot issue deferred shares. Equity shares do not have any fixed commitment charge. Dividend to equity shareholders is paid after fixed rate of interest to debentures holders and dividend at fixed rate to preference shareholders are met. Repayment of capital at the time of winding up of the company is done in the same priority and hence equity shareholders are eligible to residual income.

Debentures

A debenture is an instrument issued by the company acknowledging its debt to its holder. It is a long term borrowing and the debenture holders are the creditors of the company. Interest on debentures is a charge against profit and loss account. Debentures may be of different kinds such as secured, unsecured, redeemable, irredeemable, convertible and non convertible. Interest on debentures is a tax deductible expense.

Public Deposits

Public deposits are the fixed deposits accepted by a business enterprise directly from the public. Non-banking concerns cannot borrow by way of public deposits more than 25% of its paid up capital and free reserves.