Our national economy is complex. Goods and products flow across state lines on a daily basis. The operational footprint of some large-scale companies spans multiple states, with warehousing and distribution centers scattered across the map. Extra-regional commerce is essential to a thriving economy, but how do you make sure that everyone is playing by the same rules?
In short, it’s the Uniform Commercial Code, or UCC.
What is the UCC?
In terms of legislation, the UCC isn’t quite a federal law, but it functions like one. Instead, the UCC serves as a set of nationally standardized rules governing commercial trade.
The creation of the UCC dates back to the 1940s, with final implementation occurring in the 1950s. The laws contained in the UCC are the result of a joint effort between the Uniform Law Commission and the American Law Institute.
Here are the most salient points of what small to medium-sized business owners should know about the UCC and its implementation.
1. Not every state has implemented the UCC verbatim
As previously mentioned, while the UCC isn’t a federal law it sure feels like one. The statutes contained within the law’s purview instead serve as a guide. It’s important to understand that at the law’s genesis, each state had the option whether to adopt the UCC’s language verbatim or not.
While most states made only minor tweaks, a few states, such as Louisiana, have chosen to omit certain sections as they saw fit. Regardless, the end result is a set of codified commerce laws that help make our economy hum.
2. The UCC contains multiple sections
Each of its nine article governs a different aspect of national commerce. The articles contained in the UCC include:
- Article 1: key definitions
- Article 2: sales and leases
- Article 3: negotiable instruments
- Article 4: bank deposits
- Article 5: credit
- Article 6: bulk sales
- Article 7: title documentation
- Article 8: Investments
- Article 9: secured transactions
In other words, there is a piece of legislation for every situation regarding commerce and trade.
3. The UCC doesn’t cover every type of sale
The point of the Uniform Commercial Code is to normalize intra-state trade. It essentially levels the playing field where the sale and purchase of goods are concerned. What it doesn’t do is cover the sale of real estate or services. There are other laws and regulations that govern those areas. Therefore, if your business deals in property sales, the UCC isn’t for you.
4. UCC-1 statements and liens
Quite often business owners, especially those launching a new business, will encounter the UCC through the UCC-1 form that’s used to file a lien against some type of property. When a new business owner initially goes to finance their emergent business, the lender will have them sign a UCC-1 and then file it with their respective state office. This lien holds sway over a piece of the business owner’s collateral until the terms of the loan are satisfied.
In the end, the UCC helps to normalize interstate trade within the United States, establishing standard business procedures in an effort to create fair, equitable and uniform commerce. However, like any piece of legislation, there is a great deal of nuance involved.
