Basic Legal Terms for Investors

When investors are entering financial markets, or are entrusting their money with an investment professional, they must be aware of the legal ramifications of their financial transactions. What may look like a good investment now may not seem so wonderful if you are unaware of your legal responsibilities. Let’s have a look at some of the most important and fundamental legal terms for investors.

  • Capital Gain or Capital Loss

These are the profits or losses, depending on your investment results, from the sale of an asset such as stocks or as your home. Most often, but not always, capital gains will be taxed, and your investment advisor should inform you accordingly.

  • Damages

Damages are money paid out to a an individual who has suffered investment losses unnecessarily, or who has been the victim of injury or loss as a result of an action by a third party.

  • Shareholder

Shareholders are people who have ownership of shares, or  in a limited company. They may be individuals or institutions, including corporations that legally owns one or more shares of stock in a public or private corporation.

  • Notary Public

This may come in very handy if you are dealing with a will, a trust, or are handling other legal documents. A notary public is authorized to witness documents, and is also a public officer constituted by law to serve the public in non-contentious matters such as estates, deeds, powers-of-attorney, and even occasionally foreign and international business.

  • Living Will

This is a legal document that clearly states an individual’s wishes should they become incapacitated or unable to perform certain duties.

  • Bankruptcy

This is an a process governed by state or federal law wherein an individual can no longer pay bills when due and payable. There are chapter 7 and chapter 13 bankruptcy actions. There is also chapter 11 bankruptcy which often referred to as a reorganization bankruptcy.

  • Collateral

Providing collateral is basically providing security or showing that you are good for something. It is the security you are obliged to put down on a loan and which you may have to give up in the event that you are unable repay the loan.

  • Liability

A liability is a duty or obligation for which investors or creditors are legally responsible.

Security Agreement

Security agreements are contracts which investors agree to give security as collateral for a loan in the event that the loan is not repaid.

  • Lien

A lien is also a charge over your property such as a mortgage, or against taxes owed.

  • Strict Liability

Strict liability states that even if there is no proof of negligence, you can still be found guilty of harm.

Limited Liability Company

A limited liability company is a business that has shareholders who are limited in liability to the contribution of the fully paid up share.

Promissory Note

A promissory note is a written document under which a person promises to pay another money on a given date and pursuant to specified terms set out in the promissory note.

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