Question

1. What is the main difference between notes payable and bond payable? Explain in detail
2. What obligation does an entrepreneur have to investors that purchase bonds to finance the business? Explain in detail

Answer 1

a) Notes payable are an account that company used to maintain recording the face amount of the promissory notes that it has issued. Promissory notes are the debt instrument that is used to raise capital by the company. The balance of Notes Payable shows the remaining debt to be paid.

Bond Payable are a long-term debt that company or government is required to repay to bond holders. Bonds are issued by government and corporate to raise the capital and pay periodical fixed interest to the bondholders. Bond amount are repaid by the company on maturity.

Difference between Notes payable and Bond payable are:

	Notes Payable	Bond Payable
1.	Notes are not necessarily considered as securities.	Bonds are considered as securities under Securities Law.
2	Notes are for short term usually less than a year.	Bonds are for longer duration.

b) Entrepreneur have certain obligations towards investors that purchase bonds to finance the business. These obligations are as follows:

• Entrepreneur is obliged to pay a fixed rate of interest to bondholders periodically.
• Entrepreneur must repay the debt amount on maturity of the bond.
• Entrepreneur has a moral duty to work in the interest of investors and must undertake fair business activities.
• Entrepreneur must not undertake that activities that could harm the environment.