Chapter 5: General Business Law Flashcards
The Uniform Commercial Code (UCC)
A state statute enacted by the State of New York and, in basically the same form, by most other states, to simplify, clarify, and modernize the laws governing commercial transactions.
Negotiable Instrument
An unconditional promise or order to pay a fixed amount with or without interest. It must satisfy the requirements of negotiability defined in UCC Article 3. These are a substitute for money.
Draft
A three-party negotiable instrument. The person who signs this and is identified as the one ordering payment is known as the drawer. The person ordered in this to make payment is known as the drawee. The drawee pays a third party- the payee, instead of the drawer.
Check
This is a type of draft (also three-party) and is the most familiar negotiable instrument. The drawer is the signer of the check, the drawee is the financial institution and the payee is the individual or entity to whom it is made out.
Promissory Note
Expresses a promise to pay. The individual who makes the promise to pay is known as the maker or borrower. The person or entity to whom the promise is made is known as the payee or the lender. This is a two-party negotiable instrument.
Certificate of Deposit (CD)
Another type of note containing an acknowledgement by a bank that a sum of money has been received. The bank promises to repay the money together with interest at an agreed-upon rate when this matures. This is a two-party negotiable instrument.
Requirements for Negotiability Regarding a Draft, Note or Check
It must be in writing
It must be signed
It must contain a promise or order to pay
It must be unconditional, if it is conditional is is not a negotiable instrument.
It must state a specific or fixed sum of money
It must be payable on demand or at a definite time.
Endorsement
A signature by other than a maker, drawee or an acceptor this is place on an instrument to negotiate (or transfer) it to another person.
Blank Endorsement
When the signature of a check appears alone.
Special Endorsement
The instrument names an individual to whom the instrument is to be paid.
Holder
A person who is in possession of an instrument that is drawn, issued or endorsed to him.
Holder in Due Course (HDC)
A holder who takes a negotiable instrument for value, in good faith, and without notice that it is defective or overdue. To qualify for this, the transferee must meet UCC requirements as follows:
- Taken for “value.” The holder must give something of value for the instrument to qualify.
- Taken in “good faith.”
- Without notice of defect.
- Without any apparent evidence of forgery, alterations or irregularity.
Assignment
When a nonnegotiable contract is transferred. This is the transfer of rights under a contract.
Business Organizations
Can be structured including sole proprietorships, partnerships, corporations, limited liability companies, limited liability partnerships and joint ventures. Business organizations can receive, hold and convey title to real property in the same ways as individuals.
Sole Proprietorship
This form of business organization is owned by one individual and uses a name other than the owner’s personal name.
Partnership
A form of business organization that is owned by two or more parties and created by contract between the partners.
General Partnership
The partners are personally liable for partnership debts exceeding partnership assets. Partners are jointly (together) and severally (separately) liable for these debts.
Limited Partnership
Consists of one or more general partners who are jointly and severally liable and one or more silent, or limited, partners who contribute money or other assets of value to the extent of their ownership interest. Limited partners are not liable.
Corporation
A taxable legal entity recognized by the law with tax rates separate from individual income taxes.
Profit Making Organizations
Created to do business and distribute profits to shareholders in the form of dividends.
Nonprofit Organizations
Includes diverse organizations such as charities and colleges.
C Corporations
Corporations that are not subchapter S. Must pay corporate income tax and the shareholders are also taxed on their dividends that are profits. A double tax is paid.
S Corporations
A type of corporation that is permitted to function as a corporation but taxed as a partnership. It does not pay corporate income tax. The corporation franchise tax is 6.85 percent for income of $290k or less and 7.5 percent for over $390,000
LLC (Limited Liability Company)
May be formed by one or more persons. Owners (members) are not personally liable for the obligations of this, but is taxed as a partnership. This form of business combines the most favorable attributes of both partnerships.
LLP (Limited Liability Partnership)
Typically formed by professionals such as attorneys and accountants, does not have to have a general partner. All partners are not liable for the obligations of the partnership and may participate in management. This is taxed as a partnership.
Joint Venture
An organization formed by two or more parties for the purpose of investing in real estate or any other type of investment.
Security
Purchase of this earns the investor the right to participate in the profits of a company. These profits are realized through dividends paid to the investor and also by the sale of this after they have appreciated in value. The most common type of this is stocks and bonds.
