Put simply, a business transaction is any event that involves the exchange of goods, money, and/or services. This occurs between two or more parties. Business transactions can occur between two parties that are engaged in business, and are conducting the business transaction because it is mutually beneficial. Alternatively, a business transaction can be between a business entity and a customer.
Business transactions can be categorized as either exchange transactions, or non-exchange transactions. Exchange transactions consist of physically exchanging values. Non-exchange transactions do not consist of physical exchanges.
It is equally important to understand what does not constitute a business transaction. In order for an action to be considered a commercial transaction, and therefore a business transaction, there must be a specific payment provided in exchange. There must be an exchange of value. Additionally, a business transaction must be supported by some sort of documentation. The most common example of such documentation would be a receipt.
What Are Some Common Examples of Business Transactions?
Another way to define a business transaction is as any economic event with a third party, which can then be recorded as an accounting item. Business transactions must be measurable in money, or some other quantifiable value.
Some of the most common examples of business transactions include:
- Investing cash and/or other assets;
- Purchasing an insurance policy from an insurer;
- Buying inventory from a supplier;
- Selling goods or services to a customer for cash, or on credit; and
- Paying employee wages.
What Documents Can Support a Business Transaction?
Documents that may support a business transaction are referred to as source documents. Source documents essentially provide a physical record of the business transaction. Although many source documents are physical, paper documents, some are electronic. These documents generally contain the following information:
- A detailed description of the specific business transaction;
- The date of the specific business transaction;
- A specific amount of money to be exchanged in the business transaction; and
- An authorized signature.
Examples of documents that can support a business transaction include, but may not be limited to:
- Bank statements;
- Cash register tape, or the business copy of a receipt;
- An electronic record of hours worked by an employee;
- Packing slips, such as those included in shipments;
- Sales orders or supplier invoices; and
- Timecards or time sheets.
What Are Some Legal Disputes and Conflicts Often Connected with Business Transactions?
Business law is a broad area of law which governs all areas of business. This includes how businesses are created, taxed, dissolved, acquired, and/or sold. Such laws will vary from state to state, as well as whether the business is public or private. Such laws will also vary according to whether the business is for profit or not-for-profit. Business laws involve:
- Employment;
- Insurance;
- Intellectual property;
- Immigration;
- Environmental issues; and
- Taxes.
Legal disputes typically stem from failing to adhere to business laws, whether federal, local, and/or state-based. Business transaction disputes are commonly contractual in nature, and are frequently resolved by referencing the governing contract. Courts often refer to such documents when resolving such disputes.
An example of this would be if the members of a business are disagreeing as to who may control the business. The disputing members as well as the court will most likely refer to the partnership agreement entered into at the time the business was formed.
Another instance of common business transaction disputes involve customers and the shipment of goods, or the provision of services. Many goods and services come with implied warranties; meaning, businesses that deliver goods or services to customers commonly experience disputes with their customers regarding whether the goods or services were delivered, or up to the standard expected.
An example of this would be if a customer were to order a book, and claims that the book was damaged when received. The customer could demand that the book be replaced, or that the money be returned.
How Are Business Transaction Disputes Resolved? Who Can Be Held Liable?
Businesses may be able to avoid disputes by creating sound policies, including dispute resolution protocol. Additionally, clear policies for hiring and firing employees should be in place, as well as liability waivers and clear and visible product warnings. Should business transaction disputes arise, it may be necessary to proceed with a small claims court filing.
Doing so can help address or resolve outstanding bills, debts, or employment issues. However, this may only apply when the damages amount falls within the small claims’ filing limitations.
Businesses commonly utilize an Alternative Dispute Resolution (“ADR”) clause in their business contracts. These clauses require that any legal disputes relating to the contract are to be resolved through binding alternative measures besides the court. Some examples of alternative dispute resolution include arbitration and mediation. Generally speaking, these types of alternative dispute resolution processes must be exhausted before a lawsuit can be filed.
Arbitration refers to a process utilized for resolving disputes between two parties outside of the standard court system. It is similar to a standard trial in that both parties must argue their case before an arbitrator. The arbitrator reviews the disputing parties’ claims and arguments, and then decides on a workable resolution that can benefit both parties.
Mediation is another similar type of conflict resolution process between multiple parties, and is also facilitated by a neutral third-party known as the mediator. Mediation differs from arbitration in that the mediator does not make an actual decision regarding the parties and the resolution. Rather, the mediator’s sole responsibility is to assist the parties in coming to a workable resolution on their own terms.
If the parties cannot resolve their business outside of traditional court, one party may need to file a lawsuit against the other for damages, or for other business remedies. Disputes commonly arise between the people who own and control the business; between different businesses; and/or, between a business and its vendors.
What Remedies Are Available in a Business Transaction Lawsuit?
Generally speaking, remedies for breach of contract are divided into two categories: legal remedies, and equitable remedies. Legal remedies allow the non-breaching party to recover compensatory, or money, damages. Equitable remedies are actions that a court must prescribe. They are often used to resolve a substantial breach or contract dispute when money damages would be considered insufficient to resolve the issue, or protect the parties from harm.
It is important to note that equitable remedies are not generally available as an option until the parties can show the court that legal damages will not be enough to resolve their contract issue. If the parties cannot show that money will not remedy their contract dispute, then it is unlikely that they will be eligible for any of the equitable remedies listed below. However, there are specific circumstances in which a party to a contract may be able to receive monetary compensation under the rules of equity. These are known as “restitutionary damages”, and are an extremely specific and very limited type of damage in a breach of contract case.
Restitutionary damages basically prevent one party from being unjustly enriched for their breach. An example of this would be if the non-breaching party has already delivered their goods, but the other party has not yet paid for them. A judge may order the breaching party to pay restitutionary damages to prohibit them from receiving an agreed upon benefit for free, which would be at the expense of the other party.
Equitable damages typically include:
- Contract reformation;
- Specific performance requiring the breaching party to fully perform according to the original contract; and/or
- Contract rescission.
Are There Any Defenses Available in a Business Transaction Lawsuit?
Some of the most common types of defenses against a breach of contract include:
- Fraud;
- The breaching party was a minor or mentally incapable;
- The contract itself is illegal, such as a contract to sell drugs or murder someone;
- Mutual mistake;
- Duress; and/or
- Unconscionable contract.
The defenses available will vary greatly, based on the circumstances of each individual case and each state’s laws.
Should I Hire a Lawyer for Help with a Business Transaction Matter?
If you are starting a business, or find yourself involved in a business transaction dispute, you should consult with a skilled and knowledgeable business attorney. An experienced business attorney will be aware of all applicable laws, and will be able to represent you in court as needed.
