Small business and the law

Reading Practice

UNIT VIIi

Understanding business law takes many years. No one expects a small business owner to get a law degree or to have a complete understanding of legal concepts related to business ownership and operation. Because you will deal with numerous people, products and companies, you should be aware of your rights and responsibilities. Common sense and caution are essential in business. A general understan­ding of business law and insurancego hand in hand with good business management.

CONTRACTS. Agreements which a business owner ma­kes in the course of carrying on a business may be called contracts. A contract is a legal agreement between two or more parties in which each has rights and obligations. Contracts may be enforced by the courts if they meet cer­tain requirements. A contract must have the following cha­racteristics to be legal: mutual agreement, consideration,form, competencyand legal subject matter.

Since contracts can be enforced by law, it is important that people understand them. When an individual fails to honor a contract, the other parties to the contract can le­gally require that the contract be fulfilled or a satisfactory remedybe provided.

For an agreement to be mutual, there must be a clear, definite, and serious offer and an unqualified acceptance.If there is to be mutual agreement, there is no need for a true meeting of the minds. This means that the parties involved need not to be thinking of the same thing. If a merchant offers to sell some goods for $55 and a customer accepts the offer, it does not really matter that the mer­chant intended to say $75. There is a binding contract, at $55 if the party can prove the offer was made and accep­ted. This can be done by producing witnesses and docu­ments. The subject matter of a contract must be stated in definite terms.

Parties to a contract must receive something of value and give something of value in return. This something of value is called consideration. The consideration may be cash, goods or a service, or it may even be a particular action.

A contract is made if there is an offer and acceptance, consideration, competent parties, and legal subject matter. The contract may be written or oral. A contract for the sale or transfer of land or real property must be in writing. Contracts which take more than one year to perform usual­ly must be in writing. This includes leasesof more than one year.

A competent party is one who has legal capacity to enter into a contract. A person must be of legal age and sa­ne in order to be considered competent.

THE LEASE. Because of the greater capital required to own real property, most small business owners start out by renting or leasing business space. When an owner deci­des to rent, an agreement is made with the landlord spe­cifying the amount of rent to be paid and other conditions. The conditions agreed upon, when put into written form and signed by both tenantand landlord, make up the lease.

A lease is a contract to rent land and/or buildings for a specified time for a consideration. A lease is usually writ­ten and states the tenant's rights and obligations. A writ­ten lease is common business practice.

The lease usually states the term of the tenancy in months or years. However, sometimes in unwritten agree­ments nothing is said about the length of time the property is to be rented to the tenant. This type of tenancy is known as tenancy at will. When the landlord wants the tenant to move, 30 days written notice must be given. The tenant, on the other hand, does not have to give the landlord any notice.

The length of the lease is an important consideration. You may not want a long lease, especially if your business is not successful. On the other hand, an owner does not want an increase in rent if the business does well. It may be desirable to have a short-term lease with the option of renewing at the same rent. This is known as an optional term lease.

Leases may be classified according to the matter in which rent is paid. The term lease is a popular type of lease. It states the amount of rent to be paid for a specified time. Other types give the landlord a percentage of busi­ness income instead of a rent. This is called a percentage lease. Sometimes the rental agreement is a combination of the term lease and the percentage lease. With this agree­ment, the landlord receives a fixed rent in addition to a percentage of business income.

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