Legal Definitions - Ordinary course of business

The term ordinary course of business describes the routine, regular, and customary activities that a company typically performs as part of its day-to-day operations. It signifies that a business is operating consistently with its established practices, industry norms, and historical behavior, avoiding any unusual transactions, significant changes, or extraordinary liabilities that fall outside its normal scope.

This concept is particularly important in legal agreements, such as those for mergers and acquisitions, where parties want assurance that the business being bought or sold is stable and has not undergone any unexpected or detrimental changes before the deal closes.

• Example 1: A Local Coffee Shop

  Imagine a popular neighborhood coffee shop. Its ordinary course of business would include daily activities like brewing coffee, baking muffins, serving customers, ordering fresh beans and milk from its usual suppliers, paying its baristas their regular wages, and handling routine maintenance of its espresso machines. These are all predictable, recurring tasks essential to its operation.

  This illustrates the term because these actions are consistent with the shop's past operations and industry standards for a coffee shop. If, however, the owner suddenly decided to sell off all its coffee machines to open a car wash, or took out a massive, unusual loan to invest in cryptocurrency, these would likely be considered outside the ordinary course of business, as they are not typical for a coffee shop and represent a significant deviation from its established practices.

• Example 2: A Manufacturing Plant

  Consider a company that manufactures custom furniture. Its ordinary course of business would involve purchasing raw materials like wood and fabric from its long-standing suppliers, running its production lines according to established schedules, fulfilling customer orders, shipping finished products, and paying its factory workers and administrative staff. It would also include routine equipment maintenance and quality control checks.

  These activities demonstrate the term because they are standard for a furniture manufacturer and align with its historical operations. If, without prior notice or strategic planning, the company suddenly decided to halt all furniture production to start mining for rare earth minerals, or sold off its entire factory building to lease a much smaller, temporary space, these actions would be considered outside the ordinary course of business due to their unusual nature and significant departure from its core operations.

• Example 3: A Digital Marketing Agency

  For a digital marketing agency, operating in the ordinary course of business would mean continuing to manage client advertising campaigns, developing new marketing strategies, billing clients for services rendered, paying its employees' salaries, investing in standard software tools, and acquiring new clients through its usual sales processes. These are the typical, recurring tasks that define its daily operations.

  This example highlights the term because these activities are customary for a digital marketing agency and reflect its consistent operational patterns. If the agency suddenly decided to liquidate a substantial portion of its cash reserves to buy a fleet of commercial fishing boats, or unilaterally terminated all its major client contracts without cause, these actions would fall outside the ordinary course of business, as they are highly unusual and inconsistent with its established business model and industry practices.