Commercial Law

PR A C T I C E A R E A S - C o m m e r c i a l L a w

We have the ability to meet the needs of small to large clients in commercial law issues and transactions.

GENERAL COMMERCIAL LAW INFORMATION

Contracts are everywhere. They are a part of modern life, and we enter into them, and perform them, every day. They are necessary to the acquisition of goods and services in the marketplace.

Legally, a contract is an agreement between two or more parties that creates duties and obligations.

Some contracts are deliberately made, like a contract for the purchase of a house.
Other contracts come into being because of conduct between parties that give rise to a contract, like contracts resulting from the purchase of goods and services. You make a contract with a store every time you purchase an item. You make a contract with the dry cleaner every time you drop off and pick up your dry cleaning from them.

Government Restrictions
The basic principle of contract law is the freedom of ordinary people to make contracts. This principle is also the bedrock principle of the US legal system and free enterprise. Through contracts, private parties make laws that govern their commercial relationships. The freedom of contract principle is:

flexible because parties may tailor contracts to their needs
innovative because parties may develop contracts to adapt to changes in the marketplace

However, the freedom of contract principle is not absolute And restricted by the government. Examples of government restrictions on freedom of contract include:

It is illegal to make a contract to commit a crime, and no court would enforce such a contract.
It is illegal in many states for a man and woman to make a surrogate mother contract.
In some states, usury laws limit a bank?s rate of interest on credit. Usury laws make it illegal for you to enter into a contract with a bank under which they lend you money and you pay interest in excess of the usury rate.

Most restrictions on freedom of contract are justified on the grounds of consumer protection or public policy. Thus, there is constant tension between the freedom to make private law and the state's activity in protecting the consumer. See Consumer Law.

Choosing a Form for Your Business
Business enterprises can be set up in a variety of different forms including:

sole proprietorships
partnerships
corporations

Each form of business entity has unique advantages and disadvantages. One of the most significant considerations in choosing a form of business entity is how the business entity is taxed. See also

Taxation Law: Business Taxes
Businesses can generally change their legal structure after they are formed. However, changing the form of the business entity sometimes causes tax liabilities to the business or its owners that could have been avoided by initially choosing the best business form. Therefore, when establishing a business, deciding on the form of business entity is one of the most important decisions a business owner can make.

The choice of a business should be made in consultation with an attorney, accountant, or other competent business adviser. These professionals can also, within their respective professional areas, provide important services in:

negotiating agreements among participants in a business venture
preparing a business plan
advising on the requirements of various statutes

Obtaining competent advice and services early in the process of embarking on a business venture can significantly contribute to the long-term success and profitability of the venture.

Commercial Financing
Commercial financing refers to the numerous ways in which businesses, both large and small, obtain the money they need for business operations. Businesses obtain commercial financing through equity financing, secured financing, leasing, and other means. Even a moderately-sized business probably engages in all of these forms of business finance.
The types of financing a business may be eligible to obtain is determined by its choice of a business form. For example, the sale of partnership interests is usually limited by the terms of the agreement that formed the partnership. See Business Law for a discussion of the choice of a business form.

What is Equity Financing?
Equity financing is the sale of an interest in a business entity, such as the sale of shares in a corporation or the sale of a partnership interest in a partnership. For example, when the Microsoft Corporation issues shares that are traded on a national stock exchange, the corporation is obtaining equity financing.
The issuance of shares in corporations and other business entities is heavily regulated by the federal

Securities and Exchange Commission (SEC)
What is Secured Financing?
Secured financing is loan financing that is obtained by giving the lender the right to seize and sell assets of the business if the loan is not repaid. For example, a corporation may wish to purchase new equipment without issuing additional shares to finance the purchase. The money may be borrowed from a bank, and a security interest in the new equipment is given to the bank.

What is Lease Financing?
Some businesses obtain their equipment through leases rather than outright purchases of equipment. In this situation, the equipment is leased to the company, which repays the lease over time in the same way a private individual would lease an automobile.

What is a Security?
A security is an interest in an enterprise that is intended to provide a return to the purchaser. While most securities involve the issuance of "stock" or "shares" (like purchasing 100 shares of IBM), this broad definition covers a great many financing arrangements, including ones which the participants don?t realize involve the creation of a security.

A "security" can be in the form of a note, a bond, an investment contract, a certificate of interest in a profit-sharing agreement, a mutual fund, or any other arrangement which amounts to an investment that is expected to provide a return to the investor. A security is also any "derivative security" such as an option, warrant, put, call, or straddle.

Under federal securities law and most state "blue sky" laws, the sale of a "security" is heavily regulated. The issuance of a security requires the preparation and dissemination of voluminous information about the business issuing the security and the filing of extensive forms with the federal Securities and Exchange Commission (SEC) and state securities bureaus.

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