Write short and bridly introduction
1.Discuss the notions of negotiable instruments (hint: function, classification, type, definition etc. should be included)
A negotiable instrument is a document that guarantees the payment of a specific amount of money either on demand or at a determined future date. These instruments are used in commercial transactions to facilitate the transfer of funds.
Definition of negotiable instruments:
A negotiable instrument is a written document that represents a promise or order to pay a specific amount of money and is transferable by delivery or endorsement. It provides a legal framework for commercial transactions and enables the movement of funds across different parties.
Functions of negotiable instruments:
1. Substitute for money: Negotiable instruments can be used as a substitute for cash in the payment of debts or as a medium for transferring money.
2. Credit facilitation: These instruments enable buyers to purchase goods on credit without needing immediate cash payment. The seller can accept the negotiable instrument as a guarantee of future payment.
3. Transferability: Negotiable instruments can be easily transferred from one party to another, providing convenience in carrying out transactions.
Classification of negotiable instruments:
1. Promissory Notes: These are written promises by a person (promisor) to pay a specific sum of money to another person (payee) at a specified time or on demand. For example, a student borrowing money from a friend and giving a promissory note to repay it within six months.
2. Bills of Exchange: This document involves three parties: the drawer (person issuing the bill), the drawee (person or company obliged to pay), and the payee (person who will receive the payment). It represents an unconditional order from the drawer to the drawee to pay a certain amount on a fixed date. For example, a business owner ordering goods from a supplier and issuing a bill of exchange to pay on a specific date.
3. Cheques: These are orders written by an account holder of a bank instructing the bank to pay a specific amount of money to the person or organization named on the cheque. It is a commonly used negotiable instrument for payment transactions.
Types of negotiable instruments:
1. Order instruments: These instruments require the payment to be made to a particular person or their order. For example, a cheque made payable to the order of a person.
2. Bearer instruments: These instruments are payable to the bearer or holder of the document. Ownership can be transferred simply by delivering the instrument. For example, a cheque made payable to cash.
In conclusion, negotiable instruments serve as financial tools facilitating the transfer of funds and credit exchange between parties. They can be classified into different types, such as promissory notes, bills of exchange, and cheques, based on their specific characteristics and functions
2.Discuss the types of Commercial instruments including their distinct character.
Commercial instruments are financial documents that are used in commercial transactions to evidence the transfer of ownership or the right to payment for goods or services. These instruments play a significant role in facilitating business transactions by providing a secure means of conducting trade.
There are various types of commercial instruments, each with its distinct characteristics. Some common types include:
1. Promissory Note: A promissory note is a legal document in which one party (the issuer) promises to pay a specified amount of money to another party (the payee) at a predetermined date or on-demand. It is typically used as a form of short-term borrowing and acts as a written promise to repay a debt. Promissory notes are negotiable instruments, meaning they can be transferred to third parties, enabling the payee to sell or discount the note before its maturity.
2. Bill of Exchange: A bill of exchange is a written order issued by one party (the drawer) to another party (the drawee) to pay a specified amount of money to a third party (the payee) at a set future date. It is a legally binding document used in both domestic and international trade. Unlike a promissory note, a bill of exchange requires acceptance by the drawee to become a binding obligation. It can be transferred by endorsement, facilitating its use as a payment instrument.
3. Cheque: A cheque is a written order by an account holder (the drawer) to their bank (the drawee) to pay a specified amount of money to the payee. It allows the drawer to authorize the transfer of funds from their account to the payee without the need for physical cash. Cheques are widely used for payment in commercial transactions, as they provide a record of payment and can be easily transferred between parties.
4. Letter of Credit: A letter of credit is a financial document issued by a bank on behalf of a buyer (the applicant) to guarantee payment to the seller (the beneficiary) for goods or services. It provides a secure method of payment in international trade, ensuring that the seller will receive payment if they fulfill the terms and conditions specified in the letter. The letter of credit serves as a commitment from the issuing bank to make payment upon presentation of the required documents.
5. Trade Acceptance: A trade acceptance is a time draft drawn by the seller on the buyer, committing the buyer to pay a specified amount of money at a future date. It is used primarily in domestic trade and acts as a payment instrument similar to a bill of exchange. Trade acceptances are commonly used in credit sales, allowing the seller to receive payment at a later date while providing the buyer with a deferred payment option.
Each of these commercial instruments has its unique features and serves different purposes in facilitating commercial transactions. Promissory notes and bills of exchange are legally binding promises to pay, while cheques and letters of credit act as payment instruments. Trade acceptances, on the other hand, combine elements of both promissory notes and bills of exchange.
3.Discuss the role of negotiable instruments in business transaction.
Negotiable instruments play a crucial role in business transactions as they provide a secure and convenient means of transferring ownership or transferring monetary value between parties. Here are some key aspects of their role in business transactions:
1. Transferability: Negotiable instruments, such as checks, promissory notes, and bills of exchange, can be easily transferred from one party to another. This transferability allows businesses to quickly and efficiently exchange goods, services, or money.
2. Convenience: Negotiable instruments are often more convenient than carrying or exchanging physical currency. For example, instead of carrying large amounts of cash when making large purchases, individuals and businesses prefer using negotiable instruments such as checks or electronic transfers.
3. Legally enforceable: Negotiable instruments come with a higher level of legal enforceability. They are governed by various laws and regulations that ensure the rights and obligations between parties are protected. This legal framework provides businesses with confidence and security in conducting transactions.
4. Credit facilitation: Negotiable instruments often facilitate credit transactions as they provide the option for deferred payment. For instance, businesses can issue promissory notes to their suppliers, which allows them to acquire goods or services on credit with an agreed-upon payment date in the future.
5. Ease of proving ownership: Negotiable instruments make it easier to prove ownership or transfer of monetary value. The endorsement or endorsement in blank on the negotiable instrument serves as proof of the transfer.
6. Evidence of debt: Negotiable instruments can serve as evidence of debt owed in business transactions. For example, a promissory note signed by a borrower serves as evidence of their commitment to repay the borrowed amount.
7. Increased trust: The use of negotiable instruments promotes trust between parties involved in a transaction. This is because they provide a standardized and reliable form of payment that reduces the risk of fraud or default.
Overall, negotiable instruments are essential tools in business transactions, providing businesses with a secure, convenient, and legally enforceable means of exchange. They promote efficiency, trust, and facilitate the smooth flow of commerce
4.List and discuss the types of business organizations under the new commercial code of Ethiopia (hint, nature, differences, similarity, etc.).
Under the new commercial code of Ethiopia, there are several types of business organizations that individuals or groups can choose from. These include:
1. Sole Proprietorship: This is the simplest form of business organization where an individual operates a business on their own. They have complete control over the business and bear all the liabilities. The main advantage is simplicity, while the disadvantage is unlimited liability.
2. General Partnership: A general partnership is formed when two or more individuals come together to carry out a business for profit. Each partner contributes capital, shares profits and losses, and has equal authority. Similar to sole proprietorship, the partners have unlimited liability.
3. Limited Partnership: A limited partnership consists of one or more general partners who have unlimited liability and one or more limited partners who have limited liability up to the amount of their investment. The general partners assume management responsibilities and unlimited liability for the business.
4. Limited Liability Company (LLC): An LLC is a hybrid form of business that combines elements of a corporation and a partnership. The owners have limited liability, meaning their personal assets are protected from the company's debts. Management is either handled by the owners or appointed managers.
5. Joint Venture: A joint venture is a temporary business partnership between two or more individuals or companies for a specific purpose or project. They pool their resources, skills, and expertise and share profits and risks. Joint ventures can be formed as separate legal entities or contractual agreements.
6. Public Limited Company (PLC): A PLC is a business organization with share capital and shareholders. It can be listed on a stock exchange, and shares can be freely bought and sold. The liability of shareholders is limited to the amount of their investment. PLCs are subject to more extensive regulations and disclosure requirements.
7. Public Enterprises: These are government-owned business organizations involved in various sectors of the economy. They are created to provide essential services and promote economic development.
The main differences among these business organizations lie in the level of liability, ownership structure, governance, and legal requirements. Sole proprietorship and general partnerships have unlimited liability, while limited partnerships and LLCs offer limited liability. PLCs have more stringent regulations and are subject to reporting requirements.
Similarities among these organizations include the ability to engage in economic activities, obtain licenses, and enter into contracts. All of them can use the provisions of the commercial code to regulate their operations, protect their rights, and resolve disputes.
Overall, the choice of business organization depends on factors such as liability protection, ownership structure, management control, and the specific nature of the business and its objective. Entrepreneurs should carefully consider their needs, resources, and future plans when selecting the appropriate type of business organization in Ethiopia