Share vs loan capital
You'll learn the key differences between share capital and loan capital, and when each financing method is appropriate for a company.
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In this lesson
- 0:00 Share capital vs loan capital overview
- 0:24 Key differences in repayment and ownership rights
- 0:58 Loan capital characteristics and advantages
About this lesson
This video breaks down ownership rights, payment obligations, tax implications, and risk profiles—essential knowledge for understanding how companies finance themselves and a core concept across ACCA and CIMA financial papers. Share capital represents ownership, carries voting rights, and offers flexibility since dividend payments are discretionary and capital needn't be repaid. However, shareholders expect higher returns and rank last in liquidation. Loan capital, by contrast, creates creditor relationships with no voting rights, mandatory interest payments (which are tax-deductible), and higher priority repayment in liquidation. Interest costs are typically lower than shareholder returns because lenders face less risk. Understanding this distinction helps you analyse company financing decisions, evaluate capital structure efficiency, and prepare for questions on Financial Management, Financial Reporting, and Strategic Business Leader papers. The trade-off between flexibility and cost is fundamental to corporate finance strategy.
Duration: 2m
Transcript
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