Negotiable instruments
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  • 1. Act 1881In some places of negotiable instruments act alsonamed as:Social Security Act 1881
  • 2. History1. Common prototypes of bills of exchanges and promissory notes originated in China in the 8th century2. Later such document for money transfer used by Arab merchants by Italian merchants in the 12th centurySocial Security Act 1881
  • 3. Definition: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Examples: Cheques, bills of exchange, promissory note, Banker’s drafts, Railway receipts, Bearer debentures.
  • 4. Characteristics Following are the some characteristics of negotiable instruments • Easy to write • Property • Title • Rights • Presumptions • Prompt Payment
  • 5. Kinds of Negotiable Instruments 1. Promissory Notes 2. Bills of Exchange 3. Cheques
  • 6. Promissory Note1. “A document signed by a borrower promising to repay a loan under agreed- upon terms”.2. “A short-term debt security, usually with a maturity of five years or less”. Also called Prom note. Simply it is a promise to pay
  • 7. Parties involved in Promissory Note• The maker: The person who makes or executes the note promising to pay the amount stated therein• The payee: One to whom the note is payableConditional• The holder: A person other than payee to whom he may have endorsed the note
  • 8. Illustrations(a) A promise to pay B or order Rs. 500(b) A promise to pay B, Rs. 500 and all other sums which shall be due to him(c) A promise to pay B, Rs. 500 and to deliver to him my black horse on 1st January
  • 9. Bills of Exchange The definition of bills of exchange is much similar to promissory note. A "bill of exchange" is an instrument in writing containing an unconditional order, signed by theDefinition maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument
  • 10. Parties involved in Bills of Exchange• The Drawer: The person who draws the bill.• The Drawee: The person on whom the bill is drawn.• The holder: Is either the original payee or any other person to whom, the payee has endorsed
  • 11. Essentials of Bills of Exchange• It must be in writing.• It must contain an unconditional order to pay money only and not merely a request• It must be signed by the drawer.• The parties must be certain.• The sum payable must also be certain.• It must comply with other formalities e.g. stamps, date etc.
  • 12. Section 6 A cheque is a bill of exchange drawn on aCheque specified banker, and not expressed to be payable otherwise than on demand. Simple Definition A cheque is a bill of exchange drawn on a bank payable always on demand. Thus, a cheque is a bill of exchange with two additional qualifications, namely: (i) It is always drawn on a banker, and (ii) It is always payable on demand.
  • 13. Specimen of Cheque ABC Bank Date_____________Pay A;--------------------------------------------------------------------------------or the bearersum of rupees---------------------------------------------------------------------------------only. Rs-------/-A/c No---------LF------ Sd/-No---------------------
  • 14. Parties of cheque• The Drawer: The person who draws the cheque.• The Drawee: The person on whom the cheque is drawn.Conditional• Third person: Is either the original payee or any other person to whom, (Drawee) the payee has endorsed
  • 15. Essentials of Cheque• It is always drawn on a banker• It is always payable on demand• It does not require acceptance• No Stamp is required to be affixed on cheques• A cheque is usually valid for fix months• The banker is liable only to the drawer
  • 16. Types of Cheque 1. Order Cheque Order Cheque is a cheque , which is expressed to be so payable or which is expressed to be payable to a particular person without containing words prohibiting transfer or indicating that it will not be transferable. 2. Open Cheque They are payable in cash at the counter of the banks to the bearer of the cheque.
  • 17. Cont….3. Crossed Cheque These type of cheques are not encashed at the counter but which can be collected only by a bank from the drawer bank. But these days an individual can also draw a crossed cheque for the purpose of safety and security in certain cases.4. Bearer Cheque A bearer cheque is that which can be cashed for the bank by the bearer of the cheque. Any person who is in possession of a bearer cheque can cash it without any difficulty.
  • 18. Difference among 3Promissory Note Bill of Exchange Cheque1. There are two parties 1. There are three parties 1. There are normallyin promissory note. BOE . two parties in cheque2. Party names are 2. Party names are 2. Party names aremaker and payee in P drawer, drawee & drawer & draweenote. holder3. Maker and payee 3. drawer and drawee 3. Drawer and draweecant be same. may b same not same4. Unconditional 4. Unconditional order 4. On order for promise to payee to drawee payment5. Presented for 5. Must be accepted bypayment without any drawee 5. On demandprior acceptance
  • 19. Partnership Act 1932Meaning: When more than one persons join to start or run a business. Definition Sec. 4: “The relation between persons who have agreed to share the profit of business carried on by all or any one of them acting for all”. G. Baker: “A voluntary association of two or more industries for the operation of an industrial, commercial or other business undertaking” Partnership is the Agreement between partners
  • 20. Classification of Partners  Dormant  Active  Nominal  Minor  Quasi  Partner without capital  Limited etc,
  • 21. Partnership Deed It is document which contains all the rules and regulations required for the partnership business.
  • 22. Sole proprietorship Meaning: The enterprise carried on under the ownership of one person. Definitions: D.W. Stafford: “It is simplest form of business which is owned and controlled by one person” G. Baker: “A business operated by one person to earn profit”
  • 23. Characteristics  Ownership of business  Finance  Risk  Secrecy  Profit  No agreement  Easily transferable  Freedom of Action  Risk  Unlimited liability, etc
  • 24. Difference B/W sole proprietorship andpartnershipSole Proorietorship Partnership1. By a single person Ownership 1. More than two persons2. Single authority to Decisions 2. All partner have a right make the decisions to make decisions3. Difficulty raising Capital 3. more funds capital4. All liabilities faced Liability 4. Liabilities are faced by by one person all partners5. Easy to start Formation 5. Documentation6. Bear by one person Risk 6. By all partners7. Size of business Size of business Size of usually large 7. usually small