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Commercial Law – Why it Matters to Businesses

Commercial law

Commercial law matters to businesses because it is the foundational legal framework that allows businesses to operate effectively and with confidence. The law acts as a rule book for what can and can’t be done in virtually every aspect of commercial activities.

This includes from the formation of contracts, selling goods and services, to closing companies and handling insurance needs. The aim of commercial law is to create fairness, transparency and accountability in business so that the rights and interests of everyone involved are protected.

From the smallest of micro businesses to global corporations, commercial law is imperative for reducing risk, resolving disputes and being able to capitalise on growth opportunities. Commercial law will adapt to address changes in globalisation and technological advancements.

Read on for more insight into commercial law, including it’s origins and relevance today.

Origins of Commercial Law in the UK

Back in the mediaeval days, when merchants started trading a lot, each country had its own rules for commercial deals. As trade went global, people realised they needed a more unified set of rules to keep things in order.

Fast forward to the 17th century in England, where the first commercial law code was created and known as The Merchant Shipping Act. This rulebook set the stage for how commercial contracts and maritime trade should be managed and soon other countries took their cue from it and similar codes started to be made around the world.

As time marched on, commercial law kept evolving to keep pace as new tech and businesses popped up. In the present day, commercial law is a crucial part of the UK legal system and is constantly updated to fit in with the latest legislation in industries.

Commercial law forms the behind-the-scenes support ensuring that businesses can run smoothly and in line with the law.

Why is Understanding Commercial Law So Important for Businesses?

Running a business in the UK means dealing with a variety of legal complexities – even when things are going well. This means that having an understanding of commercial law is important because it covers key business principles like contract and competition law.

Staying on top of the latest in commercial law can be a challenge for businesses, but it’s crucial. Not keeping up could mean facing financial penalties and a dent to your reputation. Here are some key areas of commercial law that works to protect and support businesses.

Personal Property Law

For businesses, personal property law governs assets like equipment, inventory and intellectual property (IP). Understanding concepts like sole vs joint ownership is crucial in the formation of partnerships and acquisitions. The encumbered vs unencumbered property distinction impacts on a company’s ability to use certain assets as collateral or freely sell them on. As personal property law evolves, businesses must stay up-to-date so that they will property manage and protect their valuable resources and property rights.

English Contract Law

English contract law forms the basis of nearly all business transactions and relationships in the UK. The contract Act of 1833 and subsequent court rulings provide the guidelines that companies must follow when drafting engagements with partners, suppliers, customers and more.

English law takes a pro-customer stance by not always enforcing contract terms deemed unfair or inequitable. This in turn limited businesses ‘freedom of contract’, but does protect them from potential exploitation.

Staying on top of contract law principles is essential if companies want to navigate good deals and uphold their obligations fairly.

Agency in English Law

The role of agency in commercial law governs when one party can act on behalf of and bind another in business affairs. Topics of express vs implied authority indicates how far an agent can go when representing the other party’s interests.

As agency law derives from common law precedent, new court decisions can change the standards companies must follow when empowering agents like employees, contractors and subsidiaries to work for them.

Being able to clearly understand the scope of agent’s authority through contracts and policies can help to reduce agency-related risks for businesses.

Sale of Goods Act 1979

The Sale of Goods Act 1979 is the UK law governing proceedings when it comes to selling consumer goods. These rules set the restrictions and parameters for what buyers and sellers must do, and what rights they have when engaging in the transaction of goods and services. It also outlines the steps that can be taken by either party should either one break their side of the deal.

The Act states that goods should be of high quality and able to do what they’re supposed to do. They must also match the description provided of the goods when being sold and they must last a reasonable length of time for the age and value of the product.

Bills of Exchange

Bills of exchange are important in UK commercial law, particularly for businesses managing payments. These ‘drafts’ serve as a legal document that outlines the amount owed, payment date and sender’s signature.

If a business fails to honour a legitimate bill, they may face legal consequences. Ultimately, bills of exchange ensure reliable payment methods for businesses and are therefore a very important part of all commercial transactions.

International Commercial Law

International is designed to govern global trade and investment and without international commercial law, UK businesses would be less competitive on the global stage, which in turn would hinder international trade and economic growth.

This area of law sets the rules for business deals across borders including contracts, the movement of goods and services. Additionally, businesses are protected when operating internationally from the guidance offered on dispute resolution, contract enforcement and keeping IP safe.

Commercial Credit & Securities

Commercial credit and securities provide legal tools to protect business assets in case of non-payment by borrowers. The laws which are outlined in the Finance Act 1995 and the Securities Interests (enforcement) regulations 2010 set clear guidelines for enforcing security interests. Essentially, they act as a safeguard that allows businesses to recover debt by selling the assets of borrowers that have failed to repay their loans.

Insurance Law

Insurance Law in the UK regulates insurance contracts as you might expect. Insurance contracts tend to favour insurers with clauses such as ‘conditions precedent’ surrounding claim eligibility. Insurance law also addresses areas like fraud to empower insurance companies with legal tools required to combat fraudulent claims. This area of law ensures fairness and integrity in the insurance industry so that both consumer and insurance provider interests are protected.

Insolvency Laws

Insolvency laws in the UK offer protection for businesses that are struggling financially. This area of commercial law protects creditors from forcing struggling businesses into insolvency with acts like The Enterprise Act of 2002. In this, businesses are offered measures like moratorium periods which gives breathing space for companies to find funds to settle bills owed or seek further external investment to help.

The Insolvency Act of 1986 also offers ways for recovery from financial difficulties which can include restructuring over liquidation. This is an important area of law for businesses that give them a chance for recovery and stability when financial difficulties arise.

Who Argues Commercial Law in the UK?

In the UK, commercial law is managed by two legal professions, solicitors and barristers, each with their own specialisms and expertise.

Solicitors offer legal advice, drafting of legal documents and represent clients in lower court proceedings. The role is based around advising clients on legal matters including commercial law.

Barristers on the other hand are primarily specialists in presenting cases in court, especially higher courts.  Their expert advice on legal strategy and representing clients involved in litigation aids advocacy to legal representation.

Whilst both roles operate in different areas, they can overlap, particularly in complex legal cases. It’s also important to understand when someone is acting in the capacity of legal proceeding or simply offering independent advisory service as both areas are very different.

The distinction revolves around duties owed by legal professionals. In litigation, duties are primarily owed to the client whereas in advisory roles, there could be broader, ethical obligations to consider such as avoiding illegal activities or fraud.

Final Thoughts

In today’s delicate business ecosystem, commercial law has an important role. By providing the stabilisers and framework that businesses can work within, it creates trust and ethical practices, clear guidelines and recourse mechanisms.

Having the backbone of commercial law behind them, businesses can work with confidence, seize opportunities and boost the UK economy.


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