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Business and Commercial Law - An Overview
Business law and commercial law are broad legal topics that encompass business, commerce, consumer transactions, and the formation and management of business entities. Some of the more important areas of commercial law include sales, secured transactions, negotiable instruments, and debtor and creditor law.
Sales and Leasing of Goods
Contracts for the sale, lease and/or distribution of goods are generally governed by state law. A majority of states have adopted Article 2 of the Uniform Commercial Code (UCC) with regard to these topics.
The UCC defines a sale as a contract in which title to goods passes from the seller to the buyer for a price. Goods are generally all things which are movable at the time of the contract for the sale is formed.
The UCC provides rules for sales contract formation, modification, performance and remedies for breach. In addition, the UCC governs sales warranties, important to most parties involved in sales. Common UCC sales warranties are warranty of title, implied warranty of merchantability, implied warranty of fitness for a particular purpose and express warranties.
The leasing of goods is regulated by Article 2A of the UCC. Like the UCC sales article, Article 2A has been adopted in a majority of states.
Secured Transactions
Lenders often require more than a promise in order to extend credit. A secured transaction occurs when a borrower agrees that the lender may take collateral owned by the borrower should the borrower default on a loan.
The law of secured transactions is a subset of contract law. Like sales, it is governed mainly by state law. Specifically, all states have adopted Article 9 of the UCC which deals with secured transactions. Article 9 spells out rules for the structure of a secured transaction agreement and for resolving conflicts arising out of such an agreement.
Negotiable Instruments
A negotiable instrument is a check, promissory note, bill of exchange or other specialized document that represents money that is to be transferred to another. It is an unconditioned writing that promises or orders the payment of a fixed amount of money.
The law of negotiable instruments is mostly governed by state law and all states have adopted Article 3 of the UCC which deals with transactions involving negotiable instruments.
Debtor & Creditor Law
A basic understanding of credit law is vital whether you are a creditor, a business owner or a borrower. Credit allows people to buy or borrow in the present in exchange for a promise to pay in the future. Today, most credit transactions are facilitated through the use of credit cards or loans that are issued through banks or other financial lending organizations. However, some businesses still offer direct financing and credit to their customers. If a business offers credit it must comply with applicable federal and state debt collection and credit laws.
Important federal debt collection and credit statutes include:
Equal Credit Opportunity Act (ECOA)
Fair Credit Reporting Act (FCRA)
Truth in Lending Act (TILA)
Fair Debt Collection Practices Act (FDCPA or FDCA)
Fair Credit Billing Act
The Forming and Managing of Business Entities
A business owner must be aware of the main structures for business organizations, their characteristics and the law that governs their management and formation.
The sole proprietorship is created when an owner basically begins conducting business. It is simple to form and is usually chosen by one-person businesses. One owner owns all of the assets and has unlimited personal responsibility for business liabilities. The owner is responsible for the tax on all income from the business at applicable individual tax rates.
A general partnership is formed when two or more persons carry on as co-owners of a business for profit. Each general partner participates in management, owns the assets, and shares profits and losses. Each general partner is personally liable for business-related obligations. General partners are taxed on their individual tax returns.
A limited partnership differs from a general partnership in that there is at least one limited partner who contributes capital and shares in profits, but does not have substantial management control. The limited partner has liability only to the extent of his or her capital contribution.
A limited liability company (LLC) combines elements of partnerships and corporations and detailed requirements vary from state to state. LLCs must file articles with the state. As in a limited partnership, the owners, known as members, only risk losing money that has been invested into the LLC. Generally, only LLC assets are used to pay its debts. However, an LLC is not a separate taxable entity and LLC owners report profits and losses on their individual tax returns as if they were in a partnership.
A corporation is a separate legal and taxable entity. One must comply with statutory formalities to set up a corporation. Barring certain exceptions, the owners of the corporation are personally protected from the corporation's liabilities.
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