Business Law Explained
Business law is the collection of laws that regulate various areas of a business’s operations. These laws are implemented with the purpose of guiding, protecting, and helping businesses function efficiently. In the modern world, this—and the ability to manage your business in a compliant fashion—makes the understanding of business laws and regulations essential for a successful business.
Ultimately , knowledge of business law can help you avoid many future legal issues, as you will be able to spot the source of problems and work to resolve them before they get out of hand. A few areas of business law include: labor laws, intellectual property, taxation, licensing, and contract and tort law.
Contracts in Business Law
As you navigate the intricacies of running your business and its various transactions, a solid grasp of contract law will benefit your organization. Every deal your business makes is a contract of some nature. While some may be verbal, others require a typed, signed document. Understanding the fundamentals of contract law can help ensure that your business follows best practices in contract formation to limit your liability. A contract is an agreement between two or more parties that is entered into with the intention of it being legally enforceable. Contracts can be either written or implied. Under the Uniform Commercial Code (UCC), a contract is defined as the "total legal obligation that results from the parties’ agreement." The terms of a contract are what bind the parties to the agreement. Contracts should contain all important considerations and details that will affect all parties if a dispute arises. Under state law, three key elements are required for a contract to be considered valid: offer, acceptance, and consideration. When someone makes an offer to another party, acceptance and consideration must follow in order to form a binding contract. To have a valid contract, each party must consider all the obligations they must meet under the contract. Common in business contracts, an offer may be made by one person and accepted by another. Consideration represents the value that is exchanged in the agreement. Since a contract is a legal agreement, in order for it to be considered valid, a breach of contract must be proved. If a party fails to meet its obligations under a contract, it constitutes a breach. When a breach occurs, the party responsible for fulfilling the contract may be sued or held responsible for damages. Contract breaches can occur for a wide range of reasons, including refusal to perform contractual obligations, failing to perform on time, failing to compensate, and failing to perform in accordance with the terms and expectations of the agreement. In general, the consequences of a breach hinge on the importance of the agreement to the overall package of contractual obligations. If a contract breach is found to be material, it can be remedied with punitive damages. The non-breaching party may also be entitled to compensatory damages in order to make up for any losses as a result of the breach.
Corporate Law Overview
Corporate governance refers to the system by which companies are directed and controlled, as well as the processes through which these dynamics occur. The principles of corporate governance—including the distribution of rights and responsibilities among a company’s stakeholders—are fundamental to how a business functions. More specifically, corporate governance affects the relationships among shareholders, board members, executives, and other employees. Although corporate governance can mean different things for various types of entities, there is no doubt that the governance structure has a direct influence on decision-making and accountability. For example, the board of directors is tasked with determining the company’s objectives and maintaining the management mechanisms necessary to achieve those goals. Moreover, corporate governance is critical for promoting business ethics and ensuring corporate integrity. Fortunately, virtually all states have adopted laws that govern the creation of boards of directors in anticipation of the vital role that corporate governance plays in the success of companies. These statutes mandate that directors act in good faith and in a manner the directors reasonably believe to be in the best interests of the company. In addition, under corporation codes, directors must explicitly avoid engaging in self-dealing and fraud. With respect to duties owed by a director to the corporation, the director must exercise the due care that a prudent person would use in similar situations.
Employment Law Overview
Employment law encompasses all aspects of the relationship between employers and employees, including hiring, working conditions, terms of employment, employee rights and benefits, personal conduct in the workplace, privacy, and post-employment issues. Employment law is designed to ensure fair treatment in employment and to safeguard against discrimination, wrongful termination, harassment or hostile work environment, unsafe working conditions, unfair wages, and wrongful denial of family or medical leave.
The Fair Labor Standards Act sets forth the minimum age for workers in certain industries, the hour limits for minors, the length of breaks and overtime pay, along with the minimum wage. The minimum age for workers is 14 according to the U.S. Department of Labor, except for certain jobs e.g., babysitting, or for parents working at their own business, and certain rural jobs or in the entertainment industry.
The Occupational Safety and Health Administration (OSHA) sets health and safety standards for employers. In addition to workplace safety and health, OSHA regulates exposure to toxic substances, machines, and working conditions, as well as providing workers’ compensation insurance and other benefits in the case of accidents or illness.
Protection from discrimination due to age, race, gender, or religion is guaranteed by the Civil Rights Act of 1964, the Pregnancy Discrimination Act of 1978, the Equal Pay Act of 1963, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Fair Housing Act of 1968, and the Equal Opportunity Act.
Intellectual Property Law
Intellectual property (IP) law covers much ground, but, at its core, it protects business innovations and brand identity. IP protection helps businesses develop recognition and good will by preventing others from using what the business has invented, whether an invention or a brand name. There are several forms of intellectual property: An invention is a creation of technology. Like patents, trademarks are also studied in their own right. A trademark can be a word, symbol, design, or even a formula that becomes recognizable and closely associated with the product it identifies. A trophy case of trademarks creates business equity. A distinctive design can also be trademarked, but it may be afforded a different type of protection under the law. All trademarks must be distinctive to qualify, and so invention is required. A copyright protects a tangible expression of an idea. From books and music to a non-visual work like a speech, copyright law protects tangible expressions of creative works. IP laws provide a huge value for your business. You need strong IP protection.
Business Taxation
Tax compliance is one of the most significant challenges businesses face. It is not uncommon for a business entity to be subject to several different types of taxes, and for each tax to have its own set of rules and regulations. Whether it is payroll taxes or equipment depreciation, the complexity of tax compliance is considerable and can have a profound impact on a business’s bottom line.
It is thus critically important that businesses keep accurate records and keep themselves up to date on how tax laws affect their business—even the most financially-sophisticated business owner should not go it alone. For all the ways good tax planning can optimize the finances of a business, poor tax planning can be equally as damaging. For example:
• A businesses’ not-for-profit fundraisers are subject to onerous sales tax collection and remittance requirements.
• A business’s ownership structure can have major income tax implications that could be mitigated through careful estate planning.
• A companies’ use of an "inclusive" health insurance plan can prevent employees subtracted out of "affordable" care from getting additional subsidies for health care.
• A business that makes goods needs to register with the State Department of Taxation and Finance to charge "sales tax" (sometimes called "use tax").
• Investors and creditors need to understand how their interest will be taxed before entering in to any agreement with a business.
Because of these divergent and complicated tax issues , it is wise to consult with a business attorney and an accountant or other financial advisor on the tax consequences of their business structuring decisions and operations. Expert advice can ensure that a business is operating efficiently from a tax perspective and not unintentionally exposing itself to unnecessary tax liability. Or worse, getting caught way offside on an issue that could have been resolved with advance planning.
Tax compliance requires keeping good records, staying on top of changing regulations, and understanding how your business activities affects your tax liability. Tax compliance is not something that will cause any business owner a lot of trouble if you plan ahead and consult with the right professionals, but a failure to do so can be a huge financial burden.
Consumer Protection Law
Numerous federal and state consumer protection laws govern many facets of business practice. The laws administering the protection of privacy, security, and financial interests of consumers are always changing and expanding. Regulations also come down from a number of other agencies, giving various oversight entities governmental enforcement powers. Violating consumer protection laws can cost business owners thousands of dollars. For violation of consumer protection statutes, penalties may include fines, imprisonment, restitution, and repayment to the victims of trades or other transactions. Most states also have laws that can subject corporations and individuals to civil liability if they knowingly make false and misleading claims in their advertising. On the federal level, the Federal Trade Commission forbids unfair and deceptive acts regarding products sold or leased. Be aware of what fraud may be occurring in your region regarding a particular industry.
Litigation in Business Law
Unfortunately, no matter how well you plan, disputes with customers, suppliers, and even employees will arise. There are a number of methods of resolving business disputes, and it is essential that entrepreneurs learn the options available to them. Litigation in court is the traditional method of dispute resolution. Some of the advantages of this method are: On the other hand, some of the disadvantages include: Any case can be resolved by settlement before trial, but once the case begins, the costs and expenses begin to add up. It is at that point that mediation and arbitration become some of the best tools for resolving disputes. Mediation is a non-binding process conducted by a neutral party. The mediator does not make any decisions, but rather facilitates the negotiations to guide the parties to a resolution. This method has many of the same benefits as litigation, but allows the businesses to maintain some control over the proceedings. It also allows the parties to reach their own terms for resolution rather than leaving things to a judge. Arbitration, on the other hand, is a method that allows a third party to hear the evidence and make a binding decision outside of the court system. The benefits here are that the arbitrator is typically an expert on the matter in dispute, the procedures tend to be less formal than in a court system, and arbitration typically costs less than full-blown litigation. No matter what methods of dispute resolution are used, the best way to handle disputes is to prevent them from arising in the first place. Carefully drafting the contract terms will help to avoid a number of disputes, but even the best contracts cannot resolve all potential issues. To minimize disputes, businesses should: The better the communication, the fewer the disputes.
Environmental Law Issues
With the ever-growing concern for the environmental impact of industry, many areas of environmental law have been developed to protect our environment. One area is water protection. The Clean Water Act permits the Environmental Protection Agency (EPA) to set standards on water systems. Other environmental laws impact air and land protection, toxicity reduction, wildlife preservation. Again, limited liability companies, partnerships, sole traders and corporations are all impacted by these regulations. Their activities must comply with federal, state, and local environmental protection laws. While most of these laws were created with the aim of protecting the environment, one benefit of legal compliance is often the development of sustainable business practices. Sustainable business practices revolve around the conscious creation of a circular economy where manufacturers use and reuse materials, seek out alternative energy sources, and reduce and recycle waste.
Data Protection Law and Privacy Law
With the advent of the internet and the mass amounts of consumer and other data businesses amass and maintain, data protection and privacy laws have become a hot topic with legislative efforts coming in the form of state legislatures, Congress, and international controls such as the EU Privacy Shield framework. Data protection and privacy laws could be a topic for several blog posts, but this section provides a short summary.
In addition to protecting your employees’ private information, comprehensive data protection and privacy laws protect consumers’ data on behalf of the business. Different sets of laws apply to different types of data collected from individuals in the context of varying types of business operations. As an initial step, understand the personal information your business collects and maintains and the legal requirements for safely and securely handling that data . If you are collecting certain personal information from EU citizens or doing business were EU citizens could share their personal information via your business, additional EU privacy requirements (like the right to be forgotten) may apply.
Key standards include: In order to protect an individual’s protected personal information, a business must take reasonable steps to protect the information from unauthorized access and misuse. In most cases, there is no "one-size-fits-all" approach to security, so approach the issue on a case-by-case basis to determine what security measures are appropriate to test the security of the business’s electronic system and managed paper files that contain protected personal information.