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    Sanjnapadmam 1701

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    sanjna padmam

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    Sanjnapadmam 1701

    Uploaded by

    sanjna padmam
    8 views2 pages

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    8 views2 pages

    Sanjnapadmam 1701

    Uploaded by

    sanjna padmam

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Write a short note on promissory note.

    Section 4 of the Negotiable instrument Act, 1881 defines promissory notes as an instrument in
    writing (not being a bank-note or a currency-note) containing an unconditional undertaking
    signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person,
    or to the bearer of the instrument.

    Necessities of a promissory Note


    The document must contain an unconditional undertaking to pay.
    The undertaking must be to pay money only.
    The money to be paid must be certain.
    It must be payable to or to the order of someone in particular or to the bearer.
    The record must be signed by the creator.

    There are two parties in a promissory note and they are :


    1. Drawer or maker -The promisor, also known as the maker or issuer of the promissory
    note, is the person who creates or issues the promissory note that specifies the sum to
    be paid.
    2. Drawer or payee - It is the individual on whose behalf the promissory note is made or
    issued, also known as the promisee. Unless the note specifies a different person as the
    payee, the said individual is also the payee.

    A promissory note is repaid in full at the end of the term listed on the note. There are three
    methods of repayment that have been provided hereunder:
    1. Lump-sum payment: This means that at the end of the period, the full note is paid in one
    payment. Only if you are interested.
    2. Interest-only: This means that the regular payments are applied only to the interest that
    has accrued, not to the principal.
    3. Interest and principal repayment: The funds are being applied to both the accrued
    interest and the note’s principal amount.

    Advantages of a promissory note


    1. Flexibility: promissory note's flexibility is a key advantage, whether you are the lender or
    the one providing the funds. Using a promissory note, you can decide whether payments
    will be made in full now, over time, or whenever you need them. For instance, you might
    pay in interest-only installments with a balloon payment at the end. Either fully amortise
    the loan and pay the balance in monthly installments, or pay the same amount in equal
    quarterly or semi-annual payments. You can select the loan terms that best meet your
    demands or the needs of your business thanks to this flexibility.
    2.
    3.
    4.
    5. Convertible: If your business is a corporation, LLC, or any other type of separate legal
    organisation, you can use a convertible promissory note to attract possible investors. If
    you have enough cash flow to pay the principal and interest, investors might be
    interested in your business. They might not have enough faith in your company to
    purchase its stock outright or they might not understand how to value it. At a later time or
    upon the occurrence of a certain event, an investor may convert a convertible
    promissory note into preferred stock or a preferred interest in your company.
    6. Brief and often unsecured: Promissory notes are often only a few pages long, in contrast
    to standard loans, which can be hundreds of pages long. Because of this, the legal costs
    involved in creating a promissory note are often much lower than those involved in
    creating a standard loan arrangement. A promissory note does not have to be notarized
    or recorded in order to be legally binding. Consequently, you can use a promissory note
    as an unsecured loan while using your assets to secure bank or other loans..

    Disadvantages of a promissory note


    1. Short-term service: It is only appropriate for temporary services. Large projects cannot
    be funded using it as a source of fundinf.
    2. Detriment to new borrowers: It is a risky credit instrument for first-time borrowers since
    the note's ostensibly brief and simple language may cover up some unfavourable
    clauses. As a result, the borrower might be required to make a sizable payment to
    satisfy the obligations incurred.

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