Decoding Financial Instruments: Checks, Bills of Exchange, Shares
Check: Definition and Key Aspects
What is a Check?
A document ordering payment of a fixed amount in euros or convertible foreign currency.
- Drawer (Lliurador): The person or entity who issues the check.
- Drawee: The bank on which the check is drawn, obligated to pay.
- Payee: The person or entity to whom the payment is to be made.
Payment must be made at the indicated place, or at the place of issue if not specified.
Partial Payment of Checks
If the current account lacks sufficient funds to cover the full payment, the bank may dishonor the check. In certain circumstances, a partial payment might be processed, or the drawer remains obligated to ensure the account has the necessary balance.
Check Guarantees
To guarantee the payment of a check, any person may act as a guarantor, except for specific legal exclusions. The guarantor’s obligation is typically noted on the reverse of the check, and they are liable in the same manner as the person whose payment is guaranteed.
Receipt: Proof of Payment
A document issued by the person who receives an amount, provided to the payer as proof that the amount has been received.
Bill of Exchange: Definition and Usage
What is a Bill of Exchange?
A versatile tool for both payment and credit. It is a document issued by a person or entity (the drawer or lliurador) that orders another person or entity (the drawee or delivered) to pay a specified amount of money to a designated person (the payee) on a specific date.
Key Parties Involved in a Bill of Exchange:
- Drawer (Lliurador): The person or entity who creates the bill and issues the payment order.
- Drawee / Acceptor (Delivered): The person or entity ordered to make the payment. Once they accept the bill, they become the acceptor.
- Payee (Beneficiary): The person or entity to whom the payment is to be made.
- Guarantor (Avalist): A person who guarantees the payment of the bill at its maturity date, becoming liable if the primary obligor fails to pay.
- Endorser and Endorsee: The endorser is the person who, being the holder of the bill, transfers it to another person (the endorsee) by endorsement. The endorsee can also further transfer the bill by endorsement.
Options for Handling a Bill of Exchange:
- Hold until Maturity: Wait for the payment date.
- Present to the Bank for Collection: The bank manages the collection process on behalf of the holder.
- Discount with the Bank: If immediate liquidity is needed, the bill can be presented to the bank for discounting. The bank pays the holder the amount of the bill, minus its own interest, commissions, and other expenses (e.g., mailing fees). If the bank is unable to collect the amount due at maturity, these prepayment fees and the principal amount are charged back to the drawer.
Maturity Dates for Bills of Exchange:
- At a Fixed Date: Payment is due on a specific calendar date.
- At Sight: Payment is due on the day the bill is presented.
- At a Certain Period After Date: Payment is due a specified number of days after the bill’s issue date.
- At a Certain Period After Sight: Payment is due a specified number of days after the bill is accepted or presented.
Taxes and Stamp Duty on Bills of Exchange:
Bills of exchange often require presentation on stamped paper or payment of stamp duty. This tax is typically associated with financial transactions and documented legal acts.
Protest for Non-Payment or Non-Acceptance:
If the drawee does not accept or pay the bill, a protest may be initiated. This legal action allows the holder to seek recourse against the drawer, endorsers, or guarantors. It serves as proof that the bill was duly presented and was not honored.
Methods of Protest:
- Notarial Protest: A formal protest executed by a notary public. It must typically be initiated within a specified period (e.g., 8 working days) after maturity or refusal of acceptance. The notary provides official notice to the drawee and other parties.
- Equivalent Declaration (Bank Declaration): A written statement from a bank where the bill is domiciled, confirming that the bill has not been paid, either in full or in part. This serves as an alternative to a notarial protest.
- Declaration on the Bill: A written statement signed and dated directly on the bill itself by the drawee, indicating refusal of acceptance or payment.
Share: A Part of Company Capital
A title-value (security) that represents a proportionate part of a company’s capital. By owning shares, one becomes a part-owner of the company.