ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Zenith Ltd needs funds and is considering issuing either new ordinary shares or debentures to investors. Which statement correctly describes a key difference between the two?
Debenture holders are creditors who have lent money to the company, while shareholders are members who own it. Creditors are entitled to interest and repayment and rank ahead of shareholders on a winding up, whereas shareholders receive dividends only if declared.
- ADebenture holders are creditors of the company, whereas shareholders are members who own the companyCorrect
- BDebenture holders are members of the company with voting rights at general meetings as of right
- CShareholders must be paid a fixed return each year regardless of profits, whereas debenture holders must not
- DDebenture holders rank behind shareholders on a winding up in respect of their capital
Explanation
A debenture holder lends money and is a creditor, entitled to interest and repayment under the loan terms. A shareholder is a member and owner who receives dividends only if declared. The option claiming debenture holders rank behind shareholders is wrong, as creditors are paid before members on a winding up.
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