Principles of Business Law
Business law is a broad field of law but at its core it’s the set of laws that dictate how businesses can operate in the real world. Whether starting an LLC or a corporation or even just a sole proprietorship, business law governs everything from how employees are paid to what prices goods and services can be sold for. If you’re running a business, you’re a part of the legal environment, and business law is the set of rules that applies to your specific set.
Although we’re talking about business law here, it’s important to remember that it’s not the only kind of law out there. You can go bankrupt , for example, and not have any business law implications to it (or so few that they’re barely relevant). Business law also operates within the laws of other fields, including contract law and federal, state and local regulations. And business law doesn’t exist in a vacuum, meaning that it’s a topic businesses have to interact with the legal systems of other countries, such as the laws of the United States forbidding American companies from forging documents, bribing foreign officials or selling certain goods.
Legal Topics Essential to Business
A crucial aspect of business law is understanding the contracts that bind the various parties to a business relationship (which may include customers, contractors and suppliers). A contract is a legally binding agreement between parties, and it creates obligations that are enforceable in court.
Contracts have two sides: creation and performance. When two or more parties enter into a contract, it is common for one party to agree to supply goods or services in exchange for payment (usually) from the other party. Because of the importance of contracts, "intent" is very often dispositive. That is to say, if a court or other entity is asked to determine whether a contract is valid, it will look at the "intent" of the parties (i.e., what they intended when agreeing to the contract terms). If the parties intended to form a legally binding contract and there is no outright fraud, then it is generally enforceable.
There are, of course, exceptions to this general rule of remediability. For example, if a person is a minor (under the age of 18), then that person will not be held to the terms of a contract that they signed as a minor.
Another legal consideration of forming a business is liability. A liability waiver is a document that protects one party in a relationship from being exposed to Liability from the actions of the other party. Liability can arise from many sources, including breach of contract, negligence or tort. It is not uncommon for businesses to have liability waivers protecting the owners from lawsuits in situations where customers are aware of and/or assume the risks of a certain relationship (e.g., climbing, risks of product use, etc.). Liability waivers are often signed in combination with contracts.
Also pertinent to businesses are consumer rights. Consumers are not held to the same strictures of intent that are applicable to parties who enter business relationships. Often, there is no contract or agreement between a business and a consumer, but the business is still bound by certain consumer protections laws. There have been various steps taken at the federal and state level to protect consumers from exploitation, some of which may not apply if a consumer has signed a contract of some sort (e.g., when a consumer has voluntarily agreed to a certain risk of liability).
Business Entities and Structure
A solid understanding of the law requires understanding how it will affect the ownership and formation of a business. For example, a business might incorporate as an LLC, which, in turn, has consequences for how much liability the owners have. An example of this is the concept of limited liability protection, which is crucial to every form of business entity because it ultimately keeps the owner or owners of the business from losing their personal assets unless those assets were specifically guaranteed for repayment to lenders. Indeed, limited liability corporations (LLCs) and all other forms of business must be aware of this issue when structuring themselves to lower their exposure to personal debt.
The different forms of business structures are sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). The LLC and the corporation are usually the preferred forms of business entities due to the legal protections they afford. Sole proprietorships and partnerships (general and limited) expose owners to greater risks due to the possibility of personal liability that these structures present.
In a sole proprietorship, one person establishes the business. This structure is not recommended because the owner has unlimited personal liability and is personally liable for the debts of the business. Creditors could pursue the owner’s personal assets to repayment the business’ debt. The owner has the option of forming a general or limited partnership. In a general partnership, the owners are known as partners, and all of the partners are jointly and severally liable for all debts, taxes, and liabilities of the partnership. In a limited partnership, the owners are known as general and limited partners, where the one or more general partners are personally liable for the debts of the limited partnership, and the limited partner has limited liability up to the amount that he or she invested in the partnership.
A corporation is a legal entity, such as a C corporation or an S corporation. Strictly speaking, a corporation has a life that is separate and apart from its shareholders and officers. A corporation provides the most legal protection against liability for business debts by shielding any personal liability for that debt. An LLC is a legal entity similar to a corporation that protects the owners. An LLC can be tax-neutral. An LLC is a pass-through entity for federal tax purposes, whereas the taxes for a C corporation are completely separate from a shareholder’s taxes. A C corporation is taxed once, at both the corporate level and then again personally when distributed to shareholders. An S corporation is taxed only once, at the individual level, so that if business profits are distributed to shareholders, they pay tax on the money received.
Legal Framework and Compliance
Businesses must operate in accordance with a broad spectrum of regulations. For most businesses, regulations covering how they treat employees, what safety precautions they must take and how to handle taxes are among the largest considerations. There are regulations that dictate when and how to seek licenses and permits, where and how to advertise, how to deal with the public and other businesses, and how to ensure that goods and services are delivered safely.
Employment and labor regulations: Federal laws require all employers to provide their employees with specific rights and protections. The Equal Employment Opportunity Commission enforces laws prohibiting discrimination in employment based on gender, race, color, national origin, religion, age or disability. Minimum wage and overtime are also covered by federal law. Individual states also enact labor and employment regulations. Although there is preciously little regulation of employers with regard to termination of employment (most employment is at-will), in many cases employers must give employees advance notice or severance packages. It is important to consult with an attorney to determine what laws apply.
Occupational safety and health regulations: Employers are governed by federal and state regulations regarding workplace safety. The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) sets and enforces standards to assure safe and healthful conditions.
Tax regulations: All businesses must comply with federal tax regulations, and some states also impose various taxes. Not all businesses are handled the same way for tax purposes. Special provisions exist for sole proprietorships, partnerships and corporations. It is necessary to pay attention to sales and use taxes. There are also taxes that are specific to certain industries.
Licenses and permits: Certain businesses are required to obtain licenses and permits. It is essential to understand what requirements may apply to your business.
Advertising and marketing: Certain regulations apply to advertising. For example, truth in advertising laws prevents your business from making misleading or untrue statements about your products or services.
Compliance: Once you know what regulations govern your business operations, you need to implement procedures to ensure that you are in compliance. You also must periodically revisit the issue, as laws, regulations and market situations can change and require adjustments.
Intellectual Property in Business
A vital aspect of a business’s interest is the protection of intellectual property (IP). The law of IP is the law that aims to protect the ideas of productive persons from the appropriation of others. The law uses various types of rights, the patent right, the trademark right, the copyright right and the right to protection against the inappropriate taking of trade secrets, to achieve this end . The patent right protects inventions. The right to use a trademark protects the place of a trademark in the marketplace. The copyright protects original works of authorship, and the trade secret law gives protection against inappropriate disclosures.
Dispute Resolution in a Business Context
Resolving business disputes is a common part of maintaining a successful organization, as even the best of companies experience disagreements from time to time. There are a variety of different methods for resolving these, with widely varying levels of effectiveness. A few common options include negotiation, arbitration, and litigation, which we will explore in more detail here.
Negotiation is generally considered the best option for managing business disputes. As an informal approach to conflict resolution, it allows both parties to discuss the conflict directly in a less combative environment, often leading to faster and cheaper resolution of the problem without the need for third parties or legal action.
Arbitration is usually a more formal method for resolving disputes that allows the involved parties to hand over the decision to third-party arbitrators. This third-party reviews the evidence presented by both parties and then makes a ruling on the case, serving as a more efficient and cost-effective alternative to litigation. However, there are disadvantages to this approach as well. Similar to mediation, it can be difficult to ensure that an arbitrator has full knowledge of the case, and any failure to comply with the decision may still lead to litigation.
Litigation is one of the most formal and all-consuming methods for resolving disputes between businesses. This approach typically involves lengthy investigation and preparation for trial, as well as significant expenses in attorneys’ fees, and takes up a considerable amount of company resources and employee time. Unfortunately, this approach is often the only option when other types of resolution fail, especially if a lack of compliance with another approach leads to further disputes. It is advisable to consult your legal team to determine the best alternative for your business in order to avoid complications and lost time and resources.
International Business Law Issues
The legal environment of business extends beyond domestic operations, and international business law considerations are vital for organizations looking to leverage global markets. International trade agreements, often entered between nations to regulate commerce, can have a significant impact on the terms and conditions under which goods and services are exchanged across borders.
Export regulations are another critical aspect of the international legal environment, dictating the definitions, licensing requirements, and compliance rules for the shipment of goods to foreign buyers. Firms must ascertain the applicable export laws in all jurisdictions in which they do business, as well as be aware of the potential penalties for non-compliance.
Cross-border contracts add further complexity to the international operations of companies. Jurisdiction often becomes a major point of dispute, as parties may hold differing views on which nation’s laws should govern a given transaction. This can lead to significant challenges in the enforcement of international contracts in the event of violation or breach. These challenges are often magnified in cases where the relevant parties are located in two different countries.
It is critical for businesses involved in international transactions to understand the legal landscape.
Trends in Business Law
Technology’s rapid evolution continues to alter the legal environment, and a number of challenges loom for future attorneys of business law and the law as a whole.
E-commerce Issues
While the pervasive nature of e-commerce may seem perfectly normal from a consumer’s live 360 miles away ordered a pair of shoes from an online retail outlet, it makes for an interesting line of questioning in the courtroom. Is the online sales outlet a "general store" similar to the proverbial general store of yesterday, or is it comparable to a brick-and-mortar department store? Clients looking for experienced business lawyers should look for those who are active in litigation. Also, what about the ecommerce section that sells apparel from boutique retailers? Should the ecommerce provider be liable for the quality of the product that arrives on the customer doorstep? The multitude of issues compounding the legalities of e-commerce will only continue to grow.
Data Privacy Laws
Elements of data privacy are often integrated into business law matters. However , with modern law firms’ rising demands for electronic storage of records and operating systems, the industry finds itself in a gray area with few concrete regulations at this time. It is not surprising to think that a law firm requires the same basic data protection as a physician’s office with a digital record of patient information. However, there are few laws to date that address the most pertinent information. For example, if a company maintains no physical records of any kind, do they have the same responsibility to protect information as a company that operates on a standard basic level to direct their business practices? It’s just one of the many issues that will need to be addressed in the years ahead.
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