FOB (Free on Board / Freight on Board)
If you frequently ship materials or have goods shipped to you, you should be familiar with the concept of FOB. Some say that this abbreviation stands for “free on board,” while others maintain that it means “freight on board.” However you define it, FOB is a principle that determines which party is responsible for the costs and security of goods during transit.
When you form a business, it is important to understand the legal status of goods that are shipped to and from your address. Whether you plan to sell products to customers, purchase raw materials from suppliers, or both, a knowledgeable Texas business formation attorney can help you determine your responsibilities under the law. Contact the experienced staff of Texas Legal Entities at 512-472-2431 to discuss your business concerns on a confidential basis.
Two Varieties of FOB
Most transactions that require shipping are covered by a FOB arrangement. State business laws, as well as the federal Uniform Commercial Code, describe the different varieties of FOB and the circumstances in which each one may apply. In general, there are two types of FOB agreements, including:
- FOB shipping point / FOB origin – This FOB arrangement states that the seller ceases to be responsible for goods when they leave their point of origin. Typically, the shipping point or origin is the same as the seller's place of business.
- FOB destination – This kind of FOB indicates that the seller has liability for shipped goods until they are in the possession of the buyer.
If a product arrives at its destination in a damaged state, FOB helps determine who is responsible. In the case of FOB origin, the buyer may have acquired liability as soon as the product was shipped. In FOB destination arrangements, however, the seller may be obliged to reimburse the buyer for damage sustained during shipment.
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FOB is one of many complex concepts that entrepreneurs may encounter when starting a business. For legal guidance regarding FOB or other topics in business law, look no further than Texas Legal Entities. To schedule a consultation with a Texas business formation expert, contact us at 512-472-2431.
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