Business Law 101
Business law refers to the collection of rules, procedures, and regulations that govern commercial transactions and the management of business entities. It encompasses a wide range of areas, including contracts, sales, property, agency, business entities, estates and trusts, commercial paper, bankruptcy, and government regulation of commercial paper and agencies in various departments. Essentially, it sets the legal foundation for how businesses operate and interact with one another, as well as with government agencies and individual citizens.
One of the primary purposes of business law is to ensure that transactions are fair and that parties to a transaction can rely on the promises and protections afforded by law. For example, when two businesses enter into a contract, business law provides the framework for interpreting that contract and establishing whether any party has breached its terms. Beyond contracts, business law regulates other aspects of business such as the sale of goods and services, employer-employee relationships, and the protection of intellectual property rights .
Business law also holds businesses accountable for their commercial actions and can impose significant penalties and fines. For example, if a business engages in discrimination in its hiring or promotion practices, it may be subject to lawsuits and fines under anti-discrimination laws. Similarly, businesses must follow fair competition laws and can face penalties for engaging in unfair practices such as price fixing or monopolistic activities.
Agreements and contracts under business law are legally binding on the parties involved. If any party fails to meet the terms of the agreement, the law provides legal remedies. The nature of these remedies varies depending on the situation, but they can include damages awards or specific performance of the agreement, among other things. When a business is formed, owners and managers have rights and responsibilities under business law that must be followed to remain compliant and protect the business entity’s best interests.
Basic Elements of Business Law
Business law encompasses several key areas that are pivotal to the formation and operation of a business. Among these are contract law, corporate law, employment law, and intellectual property rights.
Contract law deals with any agreement that is legally binding on all parties involved. This can include anything from partnership agreements between co-founders of a startup to the terms of a loan for your business’ first piece of equipment. In text messages and emails, a contract can be an 18-point font "OK" or a smiley emoji. Courts have the ability to enforce contractual obligations; however, when enforcement goes very badly, you’ll need an experienced contract law attorney to help you rectify or renegotiate the agreement. When entering into any agreement for your business, it is vital that you understand the terms of your contract, what your obligations are, and what rights you have should a contractual relationship fall apart.
Corporate law is more straightforward, generally speaking. Corporate law governs the rights and responsibilities of the shareholders, directors, officers, and other associated agents of a corporation. Essentially, corporate law covers the internal affairs of a corporation and helps define the scope of authority for the various people working within a corporate structure.
Employment law will give you an idea of how to protect your business from liability from its employees. This area of law also details employees rights when it comes to workplace discrimination and wages owed. Violations of employment law can put your business in financial and reputational peril and can lead to lawsuits, not to mention a loss of employees. Consultation with an employment attorney before making major changes to the workplace is a good idea and can help save your company thousands in damages awards or fines.
Intellectual property rights cover the protection of anything that can be patentable as your own work. This includes inventions and works of the mind and can affect the way that you do business. When launching a new invention, for example, intellectual property laws may protect against others "borrowing" your new idea.
Contract Law and Agreements
Contracts are ubiquitous in the world of business. In its most basic form, a contract is a legally enforceable agreement between two or more parties. What therefore distinguishes a contract from other types of agreements is that contracts impose certain binding obligations on the parties involved. Nonetheless, not all agreements are legally enforceable and for an agreement to constitute a contract, certain elements must be present:
- An offer
- A mutual acceptance of that offer
- Consideration. Concerned with the question of "What’s in it for me?" the law requires that something of value must change hands. It could be a promise to do something (when the agreement with another party involves your own employee) such as "If you implement this new policy I will reward you with a bonus"; or it could be money, where the agreement with the other party is with a company or an individual outside of your own organisation.
- Capacity – In order for an agreement with another party to be enforceable, he or she must have the legal capacity to enter into a contract. For example, a minor is not able to enter into a contract so if a contract is made with a minor it won’t be enforceable by either party. In addition to a minor, the law provides that a person is not able to enter into a contract if for example he or she is mentally incapacitated or intoxicated under the influence of drugs or alcohol.
- Legality. The objective behind the agreement with another party must not be illegal or against public policy.
- Must be sufficiently clear.
Although an oral contract can be valid and enforceable, it can be difficult to prove its existence if there is a dispute between the parties. The law therefore requires certain kinds of contracts, called formalities, to be in writing: So if the agreement with another party falls within one or more of the categories set out above, then the agreement must be in writing otherwise it won’t be legally enforceable unless the terms of the agreement are executed in deeds. Examples of formalities that require a contract to be in writing are: For example, if you hire a manager to set up and manage a new branch of your company, and the manager is involved in selling assets such as shares or other personal property, you would have to make a note of the fact that they have the power of attorney to conclude a transaction with those assets sold or sold by the new manager. On the other hand, should the manager need to sell fixed property such as land or buildings, the law requires the deed to be registered and therefore the agreement with the new manager must be in writing in this case. Common types of business agreements that are found in any organization and therefore you may wish to consider as part of your compliance strategy are: These are just some of the most commonly used agreements in business but there are many other types too.
Business Entities and Organization
Business law involves the structures and governance of the many organizations or entities formed for the purposes of conducting and growing business, providing goods and/or services, or even handling specific individual transactions.
Legal structures may vary but include a sole proprietorship, partnership, limited liability company, limited liability partnership, general partnership, corporation, business trust, and unincorporated, and joint venture, or any other legally recognized business entity. Each structure has its own advantage and certain statutory obligations that must be considered in the formation of a business.
The Sole Proprietorship — The sole proprietorship has not been regarded as a separate legal entity from its owner, who is the only stakeholder or individual member and is, therefore, liable for all debts of the business. A sole proprietorship is not entitled to protection under our state’s limited liability statutes. However, other states have enacted "single member" laws that afford some protection to owners with mere "nominal" risk.
A Partnership — Partners create partnerships, which are considered to be separate entities having joint dignity with the partners. In carrying on the ordinary business of the partnership, a partner is jointly and severally liable for all debts, obligations, and liabilities of the partnership. Partners may partially liability for the partnership’s debts while enjoying some protection under state "limited liability" laws. Partners may also be individually liable for their own tortious conduct and may face vicarious liability for the acts of other partners acting within the scope of the partnership. Relationships between partners generally fall within the purview of agency law. Accordingly, an agent acting within the scope of this legal relationship binds the principal to third-party transactions.
A Corporation — Corporations are considered a separate legal entity that affords its members protection from liabilities of the corporation. However, the owners of a corporation are liable for their proportionate share of any debt, obligation, or liability of any class of such corporation. Members of a corporation are also entitled to limited protection under state "limited liability" laws. Directors are responsible for the entire operation of the corporation.
A limited liability company, or LLC, is a hybrid business structure created by statute that affords certain tax and litigation protections to its members while allowing management flexibility. Members of an LLC are entitled to some protection under state law and share in any profits and losses of the LLC.
Limited liability partnerships are similar to LLCs in terms of structure and liability protection.
Employment and Labor Law
The basics of employment law are twofold – there are rights and obligations applicable to both employer and employee. While most people recognize that the employer is required to pay wages, maintain a safe working environment, and comply with regulations on employee privacy and work hours, most people don’t realize that the employer’s rights are as far-reaching as it’s obligations.
Employment law and regulation protects the employer’s rights as well. For example, under common law, an employer can terminate an employee without notice (or with minimum notice) provided the termination is not discriminatory, doesn’t breach a contract of employment and is done in accordance with the common law principles of just cause or frustration. Basically, if the employer has just cause for termination, the employee is entitled to no notice. If just cause isn’t established, the amount of notice the employee is entitled to rely on is determined by the terms of the employment contract, or, in the absence of an employment contract, the common law principle of reasonable notice.
There is also a significant balance to the law when it comes to hiring practices – employers can (in most circumstances) require prospective employees to sign a contract of employment together with other documents (such as confidentiality agreements and non-competition agreements). Over-reaching can result in an unenforceable agreement, so it’s best to have a lawyer look at your employment contracts before you use them.
Workplace regulations are also extensive. Things like job description and performance reviews are important; no one wants to walk into a review blind-sided because they haven’t been provided a description of responsibilities or a list of performance measurements. Safety regulations aren’t only a financial requirement, they are a moral one too and can reduce injuries and lost time. Employment standards legislation (which set out minimums such as how many days off must be provided for a vacation, or what notice must be given prior to an unpaid leave of absence) must be complied with so that employees aren’t able to claim additional days off or compensation or rely on any missteps as a reason to quit employment. Finally, all employers should have up-to-date handbooks as an important part of their HR policy both to ensure compliance with the law and to enforce disciplinary policies.
As with any area of law, keeping current with the requirements is critical to your continued success as you enter the hiring and firing process. With the addition of permanent resident status for spouses and partners, employees working remotely and temp or part-time employees, it is important to ensure your policies, practices and contracts keep pace, because when employment law is involved, what you don’t know will certainly hurt you.
Intellectual Property in Business
As you build your business, it’s important to be aware of the protections available for your intellectual property (IP). There are three main types of IP protection: patents, trademarks and copyrights.
Patents. Patents hold a monopoly on "use, sale, reproduction, and distribution" of an invention. This grant from the U.S. Patent and Trademark Office is a 20-year exclusive right to make, use and sell a new invention, typically covering new processes, machines, articles of manufacture, or compositions of matter. Chances are you’ll need to file a patent application as soon as you’ve developed your product, as long as your invention wasn’t disclosed to someone outside of the business or publicly used or sold for more than a year. Failing to do so will mean that you, unlike any who know about the invention, can’t obtain a patent after that year has passed, but any of them may still be able to obtain a patent.
Trademarks. Trademarks on the other hand, offer limited legal protection for both goods and services, and may last indefinitely. While trademarks are associated with products or services that uniquely identify their source, patents and copyrights specifically cover inventions and creative works . Having a trademark for intellectual property is important, since federal registration grants the trademark owner the exclusive right to use that word or symbol, as long as it’s sufficiently distinctive. Registration is advisable for several reasons. Trademark registration gives superior rights over unregistered use, and superior rights nationwide instead of in only your immediate territory. A federal trademark holder may also get additional protection if someone else infringes on their mark, through the attorney general or other enforcer of the trademark laws. Marks become more secure after five years of exclusive use, and achieving this status is vital, as these marks are more difficult to infringe upon.
Copyrights. Copyrights cover material reproduced in some tangible form, like a book, CD or website. They cover the rights to publish and profit from printed materials, videos, film, photographs, music, sound recordings and computer programs. Because copyright protection arises at the moment an original work is created, you may not need to apply for federal copyright protection. However, federal protection is recommended for creators of original works that you plan to distribute and sell because, like trademarks, they give you the exclusive rights to your work.
If you have any questions or concerns regarding intellectual property and your business, consult an attorney familiar with these laws.
Lawsuits and Litigation in Business
The world of business law is replete with a built-in mechanism to request for resolution of disputes in court. Litigation is the process of resolving disputes between parties through the court system, and is generally preferred in the face of non-compliance. Require an enforceable judgment? Litigation will be your arrow in the quiver.
Litigation Process
Litigation commences by way of Summons issued to the Defendant. In line with the Supreme Court (Civil Procedure) Rules, the Plaintiff should file and serve the following documents with the summons:
If you have never been exposed to the litigation process, you are likely to be overwhelmed by what seems like a mountain of documents stamped with huge "confidential" and "private" watermark stamps. As a general rule of thumb, treat any document that is served on you in the course of litigation as confidential, which means keep it away from prying eyes. This also means that you should resist the urge to publish documents in the litigation to third parties who have no business in the dispute. In addition, when you mark up and annotate any documents, print a black line across each page to prevent anyone from seeing the comments you have made.
Parties can be represented in litigation by an attorney-at-law or a director of the company. Court action can be very expensive, so it is also advisable that you appoint an attorney-at-law as they will be familiar with the procedure and can insist that the matter is dealt with expeditiously. Throughout the process, parties will be required to attend various meetings and hearings – including Case Management Conference. Depending on the district, Supreme Court Case Management Conferences are scheduled approximately every 3 months. The litigation process typically takes a minimum of 12 months.
Many lawyers have developed the sickly-sweet sense of smell that identifies clients who are ripe for being bilked by an unscrupulous attorney. They tend to be new business owners with a lot of cash and very little experience in dealing with commercial disputes. Anyone who has been through the process will tell you that litigation, especially against another company, is very likely to be prolonged and expensive. In addition to your attorney’s fees, you will likely incur additional costs (e.g. photographer, videographer) to support your case.
Dispute Resolution
In most cases, parties prefer to avoid litigation. In fact, some company constitutions contain clauses mandating that disputes be referred to a mediator or subjected to arbitration. Arbitration and mediation are alternative dispute resolution mechanisms designed to provide a less costly and more efficient way to settle disputes.
Arbitration
An arbitrator is a third party commonly appointed by both parties or the court, who will conduct the entering of evidence and after hearing parties, deliver a binding "court award" / judgment. There is not much difference between litigation and arbitration, but arbitration can be done outside of the court system. However, arbitration awards are enforced by the court just the same.
Mediation
Mediation is the process by which a third party attempts to facilitate negotiations between parties with the objective of reaching an out-of-court settlement. Mediation sessions are usually conducted with all parties and their attorneys present. While the mediator may help with the discussions, the process may also include techniques to improve party negotiation styles and skills. Mediators are not judges and do not make decisions on behalf of parties.
Not all parties to a dispute are amenable to alternative dispute resolution. For example, the party seeking a judgment may want the matter to go to trial to demonstrate a point; whereas the noncompliant party may refuse to pay unless ordered by the court.
Dispute resolution can save you time and money while still providing a fair outcome. While alternative dispute resolution is preferred, litigation has its place and can be a good thing.
Business Law Compliance
Staying compliant with business regulations is crucial for the longevity of your business. Each state has specific regulations that businesses must abide by or risk legal ramifications. When businesses fail to comply with local regulations, they oftentimes open themselves up a range of legal issues. In addition to avoiding potential fines and even losing your business altogether, when you’re found in violation of your state’s business regulations you may also need to hire a business attorney to represent you in court. Negotiating the legal landscape can be difficult and overwhelming, especially if you’re new to the world of small business. However, as long as you continue to stay proactive and monitor your business’ regulatory checklist you should be in the clear.
Business Law Study Guides
Students and professionals who are interested in entrepreneurship, small business management, and corporate law will benefit from a number of valuable resources on business law and related legal topics.
Textbooks
Students will find textbooks on various business law topics and subsidiaries of the subject in any known bookstore. The most popular textbooks include:
Online Courses
Online courses are also available for students who wish to learn and study at their own pace.
Professional Organizations
Professional organizations such as the American Bar Association provide important information on news , events, and courses related to business law. Professional social networks such as LinkedIn also provide access to a wealth of resources for learning about business law and building a network of legal professionals.
In addition to these resources, there are many more options such as webinars, forums, offline events, and blogs.