The difference between debt securities and equity securities?

The difference between debt securities and equity securities?
In a nutshell, both debt and equity securities are financial instruments that assist companies to finance their operations.

Debt securities are legal obligations to repay borrowed funds at a specified maturity date and provide interim interest payments as specified in the agreements. The examples include commercial papers, bonds, loans, debentures, and T-bills among others. The benefits of issuing debt securities of companies are that the interests paid are tax-deductible: i.e., they are expensed so that companies pay less tax; they protect companies from losing control over operations; and also help discipline management.

On the other hand, debt securities increase the probability of bankruptcy and expected bankruptcy costs; reduce financial flexibilities due to negative covenants among others.


Equity securities represent an ownership stake in a company, such as common and preferred shares. Shareholders are entitled to dividends from post-tax earnings which are taxed at a lower rate than interest payments received for bonds. However they receive dividends only after all creditors have been paid.