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There are three main differences between debt and equity, which are: Debt is not ownership; creditors don't have any say in the firm's decisions. Interest is taxable, but dividends are not tax deductible. Unpaid debt is a liability on the firm; if the firm goes bankrupt creditors can legally claim assets of the firm. Debt can result to financial failure, but this is not the case when equity is issued. Is it Debt or Equity? Sometimes it is unclear if what the firm is offering is a debt or equity security. The main purpose behind doing this is so that firms offer debts that are actually equity securities so that they can obtain tax benefits from debts and the bankruptcy benefits of equity...
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