Homework Question on Shareholders and Debenture Holders
- Shareholders and creditors, especially long-term lenders such as debenture holders (or ‘bond holders’ in the US), each provide capital to a company and, in return, have expectations of some form of gain from the company and some form of protection of their investment. Each has a vested interest in the success (or at least not the failure) of the company.
- Considering that shareholders and debenture holders each have a legal relationship with the company related to the capital they have provided to the company, what points of similarity exist as to the nature of each groups’ rights (e.g., the nature of their rights in relation to income, return of capital, voting, etc.)? What are key points of difference?
Homework Answer on Shareholders and Debenture Holders
Shareholders, creditors and other lenders who provide capital on a long-term basis to businesses have great expectations in the form of gains from the businesses. They include debentures and other bondholders who provide their capital to companies. This is because in return for the capital invested, they expect some form of protection for their investment.The shareholder, debenture holders and the creditors each have the same interest in the company especially on its success and the working against failures.
The different rights
Despite similar relationships and interest in the companies where they provide capital, there are both similarities and differences in the nature of their rights. These are related to their income, voting, and return of capital among other factors. The similarities and differences in the rights of debenture holders and shareholders are brought out by the fact that while the latter are part of the business since they are joint owners of the company, the former are only considered to be mere creditors.
These similarities include the right to obtain interest and hence their immense interest in the success of the company. It is mainly because both of these groups have provided a portion of the capital used in the business although they are involved in different ways in the functioning of the business. These roles include the total control of the shareholders in the company operations while the debenture holders are not in any way concerned with the maintenance of the business.