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PDF Editor FAQ

Does an IOU hold up in court?

Generally speaking an “IOU” is a written acknowledgement of debt. Most courts that I am familiar with will treat it as such - evidence that, at the time they signed it, one party was acknowledging that they are indebted to the other. However, it is not treated as more than that - for example, it is not a promissory note, it is not a loan agreement, and it is not confirmation that the debt has not been discharged in the interim.When I was a young lawyer, I was always taught: “Never rely upon an IOU, always ask the party to sign a promissory note because a promissory note is ‘binding’.” But over the years I have come to realise that advice is, well, maybe not bad advice, but certainly misconceived. Let’s imagine two debtors - one signs a promissory note and the other signs and IOU. When the time comes to pay, there are two things that may happen - they might either pay or they might not. If they pay, then obviously there is no problem and it doesn’t matter. If they don’t you would try to enforce the debt through court proceedings. But if the courts accepts either document as genuine and extant, then they are going to give judgment against the debtor, and so, again, it doesn’t really matter which form you used.The two obvious upsides to a promissory note is that (i) it is easily transferrable to third parties, and (ii) you can include additional terms like due dates and interest. But if neither of those considerations are relevant, then there is isn’t much difference.

Can money exist without debt?

In present day - debatable. Paper money is a promissory note from the issuing government. Charge cards are short term loans. Debit cards and checks are drawn on a balance you are effectively lending to a bank.In the past - certainly possible. At one time money was in the form of gold, silver and copper coins. The value was based not on the credit worthiness of the government, but on the value of the metals in the coins.

How does one officially give their own startup business a loan that will be paid back post investor funding?

To make it official, you need to document the loan and paper it in the form of a promissory note with fair business terms that is approved by the board (even if that is only you right now). Ask the attorney who incorporated you to send you a simple promissory note document for this purpose. Good luck!

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