Legal Aspects in Business

• Contract


  A legally binding agreement between two or more persons that is enforceable by law
• Difference between a contract and a social agreement

  • Contract must be enforceable by law
  • Contract must give rise to rights and obligations
  • Parties must have the intention and ability to create a legal relationship between them
• Characteristics of a contract

  • Offer and acceptance
  • Form or consideration
  • Capacity of the parties
  • Legality
  • Good faith
  • Genuineness of the consent of parties
  • Possibility
• Offer

  The person making the offer
• Offeree


  The person accepting the offer
• Types of contracts


  • Simple contract
  • Specialty contract
  • Contract of record
• Invitation to treat


  A declaration of the intention of a person(s) to make an offer, but not the actual offer that can be accepted
• Counter offer


  An alternative offer made by the offeree to the offeror, but it does not have to be accepted
• Rules of offer and acceptance

  • The offer must be communicated to the other party
  • The offer may be general but must be accepted by a specific person(s)
  • The offer can be revoked at any time before acceptance unless consideration has been made to keep the offer open
  • All conditions must be known to the offeree
  • Acceptance must be unconditional
  • Acceptance must be made within a reasonable time
  • An offer lost in the post is NOT AN OFFER
  • Acceptance is made when the letter is actually posted
• Ways to terminate/discharge a contract

  • Mutual agreement
  • Breach
  • Performance
  • Impossibility
  • Death
  • Bankruptcy
  • Time -Non-performance during a specified time period
• Conditions for a valid written contract

  • It must have a date
  • It must be signed, sealed and delivered
  • It must be witnessed
  • There must be no factual mistakes in it
  • Performance time must not lapse
  • It must be legal or legitimate
  • Performance must be possible
  • It must be registered
  • It must be reasonable and fair
• Conditions for a valid oral contract

  • The features must be present, active, enforceable or functional
  • Performance must be possible
  • Time must not lapse
  • No minor, mentally ill or learning disabled person should also be noted
• Any exclusion clauses must be made clear
• Contract is invalid if goods sold/bought were stolen property, whether buyer was aware of it or not
• Failure to comply with statutory requirements make the contact invalid
• If parties become insolvent contract can be voidable/invalid
• In any organisation where goods and services are being supplied, various documents are needed from the initial stage to the final stage of payment.
• Reasons why business documents are necessary

  • To ensure there is no confusion about what has to take place between the buyer and supplier
  • They provide records/proof of activity which can be used in the future for activities such as legal matters, competition, discounts etc.
  • They are used to track and purchase stock in a timely manner
  • They provide information for the accounting process
• Documents used in trade

  • Letter of enquiry
  • Quotation
  • Tenders
  • Proforma invoice
  • Invoice
  • Credit note
  • Debit note
  • Statement of accounts
• Letter of enquiry


  Used when a person/organisation wishes to find out information about a product(s) e.g. prices, specifications
• Quotation


  Includes prices, trade discounts, cash discounts, description of goods, transport cost
• Tenders


  Competitive quotations/estimates submitted under confidential cover by a number of producers of goods and services
• Proforma invoice


  Similar to an invoice but is usually sent before dispatching goods, when payment is received the goods are then delivered
• Invoice


  Informs the buyer of what they owe, includes quantity supplied, individual prices, total owed, taxes, any terms and conditions
• Credit note


  Shows a reduction in the amount charged on a previously issued invoice due to price charged being too high, some goods were faulty and returned, too few goods were delivered, or a discount was omitted or too small
• Debit note


  Has the reverse effect of a credit note, issued when the original charge was insufficient or more goods were sent than were invoiced and the buyer kept them
• Statement of accounts


  Summarises all the transactions between a buyer and seller over a period of time
• Proforma Invoice


  Similar to an invoice but usually sent before dispatching goods. When payment is received, the goods are then delivered. May be used when the seller is uncertain about the buyer and if he will receive payment.
• Invoice


  One of the most important documents which goes from the seller to the buyer, informing the buyer of what he owes. Includes: quantity supplied, individual prices, total owed, taxes (e.g. VAT), any terms and conditions.
• Credit note


  A document showing a reduction in the amount charged on a previously issued invoice as a result of: price charged was too high, some goods were faulty and returned, too few goods were delivered, discount was omitted or too small.
• Debit note


  Has the reverse effect of a credit note. Issued when the original charge was insufficient or more goods were sent than were invoiced and the buyer kept them.
• Statement of Accounts


  A statement which sums up all the business that has taken place between the buyer and seller for a certain period. Shows: amounts outstanding from previous period, any purchases (invoices & debit notes), any payments (including credit notes).
• Purchase Requisitions


  An internal order/request for goods by one department in the organisation from another. If the order goes to an external organisation, it is then known as a purchase order.
• Stock Card


  Shows additions, deductions and the balance of stock/inventory held by the business. Enables the firm to purchase stock on a timely basis.
• Cash Discount


  A cash reduction in price shown as 'terms' on the document (invoice). Given to encourage prompt payment.
• Trade Discount


  A discount given to people in the same trade as the seller.
• Import License


  Document issued by an importing government, giving permission to bring items into the country.
• Bill of Lading


  Document used in the shipping of goods and represents the title to ownership of the goods. Shows details of goods, destination, terms of shipping. There are 3 copies, one for the exporter, ship's captain and the importer.
• Airway Bill


  Serves as a receipt of goods carried by an airline. Similar to the Bill of lading but is not a document of title. The sender does not have to get a copy.
• Certificate of Origin


  Shows the country of origin of the goods. May be required by the importing country if there is an agreement to give a country favourable tariff rates or ban on goods.