It is impossible to operate a business without paying some attention to the law. Even a criminal enterprise must pay attention to the law, though that's a different article entirely.
Examples are everywhere:
- Forming a company (do you form it as a corporation or as an LLC?)
- Licensure requirements (what licenses are needed? how are they obtained? what are the risks of operating without one?)
- Leasing or buying space (what terms are negotiable? By the way, the answer is usually "all of them")
- Hiring, dealing with, and terminating employees; advertising (where does permissible puffing stop and improper misrepresentation begin?)
- Intellectual property (you don't want to unintentionally, or intentionally, infringe on the copyright, trademark, or patent of another)
- Raising money from investors
- Contracting with customers and suppliers
- Borrowing money
Most businesses of any real size have a banking relationship that includes a line of credit, or a relationship with a non-bank lender. Either way, most have “pledged” substantially all their assets to that lender as security to support the loan.
That pledge, unless it involves only real estate, is always made pursuant to a “security agreement” that is then used to “record” a “security interest” in the pledged collateral (and even when it does involve real estate, there is usually a security agreement to cover personal property at, or on, the real estate).
The relationship between your company as a borrower and its lender is, of course, governed by the security agreement and other legal agreements signed between the parties. But that’s not the entire story. The relationship is also governed by Article 9 of the Uniform Commercial Code. And where the agreements say one thing and Article 9 says something else, Article 9 often controls.
You don’t need to understand Article 9 as well as an attorney. But, as Sy Syms said, you should be educated when hiring and working with one.
Dealing With Defaults Under Article 9 of UCC: A Player’s Guide for the 21st Century by Etahn Cohen and Jonathan Friedland and published by Thomson Reuters in the most recent edition of the UCC Law Journal (based on a chapter in 2022 edition of Strategic Alternatives For and Against Distressed Businesses), is mandatory reading for any business person who intends to negotiate a commercial loan.
Again, in case you missed it, the best time to read the article is not after a loan goes into default. Rather, the best time to read it is before your company executes loan documents. Use whatever platitude you like: hope for the best but plan for the worst, an ounce of prevention is worth a pound of cure, etc. Or, our favorite: Der Mensch Tracht, Un Gott Lacht.