ExpertEasy2 marksMultiple Choice
ACCA · Question 18 · Corporate and Business Law
Which of the following is a key difference between share capital and loan capital?
Which of the following is a key difference between share capital and loan capital?
Answer options:
A.
Shareholders are creditors of the company, while debenture holders are members.
B.
Interest on loan capital must be paid regardless of profitability, whereas dividends on share capital are paid only out of distributable profits.
C.
Share capital can be secured by a floating charge, but loan capital cannot.
D.
Loan capital carries voting rights at general meetings, whereas share capital does not.
How to approach this question
Compare the financial returns and legal status of debt vs equity.
Full Answer
B.Interest on loan capital must be paid regardless of profitability, whereas dividends on share capital are paid only out of distributable profits.✓ Correct
Loan capital represents debt, meaning the company has a legal obligation to pay interest whether it makes a profit or not. Share capital represents equity, and dividends can only be paid if the company has sufficient distributable profits.
Common mistakes
Confusing the rights of members (shareholders) with the rights of creditors (lenders).
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