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Simple English definitions for legal terms
commercial paper
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A quick definition of commercial paper:
Commercial paper is a type of document that shows someone owes money. It can be a check or a certificate of deposit, and it's usually used by companies to borrow money from other companies. Sometimes it's called "mercantile paper" or "company's paper." Commercial paper can be bought and sold, and it's governed by a set of rules called Article 3 of the UCC.
A more thorough explanation:
Commercial paper refers to any written or printed document that represents a debt. It can be a negotiable instrument, such as a check or certificate of deposit, or a non-negotiable instrument, such as a promissory note. Commercial paper is commonly used in business transactions and is governed by Article 3 of the Uniform Commercial Code (UCC).
- A company issues a short-term unsecured promissory note to meet its immediate cash needs.
- A bank receives notes, checks, bank bills, drafts, and other instruments as cash from its customers.
- An instrument representing a loan secured by a bill of lading or warehouse receipt is considered commodity paper.
- An instrument payable to the person who holds it rather than to the order of a specific person is called bearer paper.
- An instrument payable to a specific payee or to any person that the payee designates is called order paper.
These examples illustrate how commercial paper can take different forms and serve different purposes in business transactions. They can be used to secure loans, facilitate payments, or provide short-term financing. Commercial paper is an important tool for businesses to manage their cash flow and meet their financial obligations.