10 Commercial Law Terms To Know Before Starting A Business

Commercial law is one of the prior things and concepts to understand if anyone has plans to start a business. People who are already involved in building up a business know well about commercial law and might have faced commercial litigation at least once. It is not a thing to be stressed about if well understood and accomplished with the profiles to handle the situation well.

What is commercial law?

Commercial law is a sector of law and enforcement that deals with the disputes within commercial organizations that arose due to business matters. Commercial law has determined and precise law besides the general law system of a country. Commercial law is also known as business law and only deals with businesses and organizations involved in business with each other.

Commercial law has been accredited within a separate section because business and commercial sectors can carry a plethora of disputes that need to be dealt with separately by focused attorneys. Commercial litigations are dealt with under business law and can be anything like a breach of contracts, partnership disputes, shareholder disputes, class actions, etc.

Thus, every business owner must be aware of the commercial law and must hire a company lawyer to handle such future cases. Commercial law has four major substitutes under it- Company law, Intellectual property law, Agency law, and Contract law. As a business owner, any lawsuit from the above-mentioned sectors is quite unavoidable but can be dealt with effectively.

Terminology

As a newbie in the business sector, certain commercial law terms must be thorough to you. The widely used terms in business law are:

1.    Corporate Governance

The term corporate governance refers to the system and set of regulations adhering to which, corporations are governed by the board of directors. Corporate governance is essential for any business to step forward in the way of long-term success. Corporate governance plays a key role during corporate feuds and disputes in a legal aspect.

2.    Strategic Alliance

A strategic alliance is a mutual agreement between two companies who collaborate on specific projects retaining their independence. The strategic alliance might sound easy but is a matter of huge responsibility. Any business when collaborates with other organizations strategically, work must be carried out strategically. If one business fails to deliver a contract in a strategic alliance relationship, it might lead to commercial litigation.

3.    Par-Value

Par value is the term referred to as the value of a single common share of a corporation. Interestingly par value is not the exact value of a share of stock but a value lower. The par value is set by the corporation and its charter. The company has all rights to set a par value as the exact value of shares.

4.    Thin Capitalization

Thin capitalization is defined by the ratio of debt to equity. A company is called to be thinly capitalized when the value of debt is higher than the equity. In such cases, the company can face commercial litigation.

5.    Piercing the corporate veil

This is a common term used in the legal scenario of commercial litigation. The term means to pass a legal decision that equalizes the value of the rights and duties of a corporation to the rights and duties of the shareholders. Piercing the veil of any corporation is irrespective of other factors of the corporation. When a legal court makes this decision, the corporation ceases to exist as a separate entity from the shareholders.

6.    Accredited investor

An accredited investor is a person who purchases a security from a security issuance company. An accredited investor holds a special position in the company without being known. The classified status of accredited investors may or may not lead to commercial litigations.

7.    Authorized capital

Authorized capital is the maximum figure of shares that a company is allowed to issue. This is based on the company’s charter. Authorized capital is offered by the corporation as an initial public offering and the shareholders purchase it from the company. A part of the authorized capital is held by the company in case financial needs arise in the future. However, the authorized capital of a company cannot increase without shareholders’ approval.

8.    Shareholder

A shareholder is simply a person who buys shares issued by a company. This makes them eligible to gain a part of the profit that is achieved by the company. Similarly, if the company loses capital, the shareholder loses money. A shareholder is also called the stockholder.

9.    Intellectual Property

Intellectual Property is referred to as any personal property of a person or corporation that is subjected to copyright. Intellectual Property consists of inventions, authored content, designed creations, etc. All such properties are owned by someone and cannot be copied or republished without permission.

10.Arm’s length transaction

Arm’s length transactions are carried among two parties who are completely irrelevant and independent of each other. The amount of transactions carried is the only relationship between the two parties. Thus, the two parties involved in the transaction are completely non-related to each other. Arm’s length transactions can have legal and financial implications.

Conclusion

Above were some important terminology of the commercial world that must be gone through properly before starting a business. Be it online or offline, a business has transactions and accounts to manage. With experience in the legal field, it can be said that most of the disputes arising in the commercial sector are related to debts and finances. Thus, it is important to keep regular checks on the sales and purchase chain.

Commercial litigations can be well handled with professional attorneys, but it is advised to keep a check on your business activities so that lawsuits can be avoided. A serious lawsuit against the company can lead to damage in reputation and market value. This can also result in weakened shares in the stock market leading to huge losses in business. Investors might also find it unfaithful to have their money invested in leading to complete collapse. Thus, it is necessary to be well equipped with all the terms and consequences a commercial law might bring.

Article by Suraj Chakraborty