Difference Between Debt And Equity

Difference Between Debt And Equity

The main dissimilarities or difference between debt and equity can be pointed out as follows:

1. Introduction

Debt: Borrowing of money to raise capital for the business

Equity: Raising capital by issuing share of common stock

2. Profit Sharing

Debt: No sharing of profit

Equity: Yes, profit is shared

3. Type

Debt: It is a type of loan

Equity: It is owned fund

4. Holders

Debt: Known as creditors

Equity: Known as investors

5. Risk Involved

Debt: It involves less risk

Equity: It involves higher degree of risk

6. Type Of Return

Debt: Fixed rate of interest

Equity: Dividend

7. Nature Of Return

Debt: Interest is regular and fixed

Equity: Dividend is not regular and fixed

   Also Read: 

Difference Between Grant And Loan

8. Period

Debt: Shorter maturity period

Equity: For longer period

9. Voting Right

Debt: No voting right for lenders

Equity: Shareholders get the voting right

Debt Vs Equity (Comparison Chart)

Basis For Difference	Debt	Equity
Introduction	Fund borrowed to raise capital	Issue of share to raise capital
Sharing Of Profit	No	Yes
Refers To	Loan	Owned fund
Holders Are Called	Creditors	Investors
Risk	Less	High
Return	Interest	Dividend
Nature Of Return	Regular and fixed	Not regular and unfixed
Maturity Period	Short	Long
Voting Right	No	Yes

I hope this post is helpful to understand the difference between debt and equity and to make comparison between them.