Definition of Business Law

Business law encompasses all of the laws that dictate how to form and run a business. This includes all of the laws that govern how to start, buy, manage and close or sell any type of business. Business laws establish the rules that all businesses should follow. A savvy businessperson will be generally familiar with business laws and know when to seek the advice of a licensed attorney. Business law includes state and federal laws, as well as administrative regulations. Let’s take a look at some of the areas included under the umbrella of business law.

What is Business Law?

Business law deals with the creation of new businesses and the issues that arise as existing businesses interact with the public, other companies, and the government. This area of the law draws on a variety of legal disciplines, including tax law, intellectual property, real estate, sales, employment law, bankruptcy, and others. Business law attorneys specialize in transactional work, meaning they do not represent clients in court. In fact, business lawyers are often hired for the purpose of avoiding future litigation.

To understand the role of business law within the legal system, it helps to view businesses as entities separate from their owners and employees. Just like individuals living together in society, business entities are subject to legal rules designed to give every participant in the marketplace a fair opportunity to succeed.

An enforceable system of business laws also benefits the economy as a whole and provides for more efficient transactions. For example, a supplier who sells goods on credit can be confident that the buyer will held to the agreed payment terms. As long as the contract is drafted and executed in accordance with the Uniform Commercial Code (UCC) adopted in that jurisdiction, the supplier knows ahead of time it will be able to enforce the contract against the buyer if necessary.

Starting a Business

Much of business law addresses the different types of business organizations. There are laws regarding how to properly form and run each type. This includes laws about entities such as corporations, partnerships and limited liability companies. For example, let’s say I decide to start my own pet grooming business. I need to decide what type of business I want to be. Will this be a partnership? Will it be a sole proprietorship? What papers do I need to file in order to start this business? These questions fall under the laws that govern business entities, which are state laws. The type of entity I pick will also affect how I pay my federal income taxes. These, of course, are federal laws.

Next, what will my business be called? Let’s say I decide on Barks & Bubbles as a name for my dog grooming company. Now I need to know if anyone else already has that name. This is a trademark question. Patents, copyrights and trademarks are part of intellectual property law. The federal law governs most intellectual property law. Then I need to know if I’ll require any special type of license for this business. Do groomers need a license? Am I allowed to have animals on my property, or do I need some sort of special permit? I’ll need to check my local and state laws to find out. How will I advertise my business? Am I allowed to say that I’m the ‘best in town?’ This question falls under consumer protection law, which can be federal or state law. Wow. That’s a lot of business law, and I’m not even open for business yet!

Buying a Business

Now let’s say I decide to buy a business instead. I’m going to buy Patty’s Pampered Pooches from my Aunt Patty. There are many business laws that govern how to buy a business. If I buy Patty’s business, do I now own the actual store? This is a real estate law question. Do I own the pet grooming equipment in the store? This is a property law question. Both of these fall under state law. Am I now the boss of Patty’s employees? This is an employment law question.

Can I start hiring my own employees and ordering supplies? This will involve contract law, since I’ll be making new agreements with people regarding my business and determining which of Patty’s agreements I need to uphold. Contracts are legally binding agreements made by two or more persons, enforceable by the courts. Businesses are involved in many different types of contracts, and as a result, there are many interesting cases involving breach of contract. A breach of contract is when one party doesn’t hold up his or her end of the bargain. It’s common for parties to dispute the terms of a business agreement or disagree on how the agreement should be performed.

For instance, consider the famous case of Locke v. Warner Bros., Inc. Sondra Locke was a long-time girlfriend of Clint Eastwood. When the two broke up, Locke sued Eastwood for support. As a part of their settlement, Eastwood negotiated a contract for Locke with Warner Bros. Locke was given a director’s contract, where Warner Bros. would pay Locke for any projects she directed or produced. Locke proposed more than 30 projects, but Warner Bros. never hired her. She sued Warner Bros. for breach of contract, saying that Warner Bros. never intended to hire her in the first place. After a court ruled that Locke had enough evidence to proceed with her case, the parties settled.

This case demonstrates the importance of making good contracts. A wise businessperson will be sure to enter contracts with a good understanding of the content and a good faith interest in upholding the contract.

Managing a Business

There are many laws that concern managing a business because there are many aspects involved in managing. As you can already see, running a business will involve a lot of employment law and contract law. For my new business, I’ll need to know how to hire, what my contracts should look like, what kind of benefits I have to provide, how to pay employee insurance and taxes and even how to properly fire an employee. Many of these employment and benefit laws are federal laws and regulated by government agencies. For example, the Equal Employment Opportunity Commission is a federal agency that enforces employment discrimination laws.

If I also decide to sell things as part of my pet grooming business, like dog collars or dog treats, then I’ll need to be familiar with the laws on sales. For businesses that conduct sales, it’s especially helpful to be familiar with the Uniform Commercial Code, or UCC. This publication governs sales and commercial paper and has been adopted in some form by almost all states.

Business Formation and Internal Agreements

New companies must take steps to comply with the law even before opening their doors for the first time. Business law attorneys are routinely asked to form new entities on behalf of their clients by filing the necessary documents with the Secretary of State. Clients may also need assistance choosing the business entity best suited for their enterprise.

Businesses can be formed as corporations, limited liability companies (LLCs), partnerships, and other entities. Most of these business forms can be further customized to meet the needs of the company. Examples include corporations formed as “S-corps” in order to achieve tax savings, and partnerships formed as “limited partnerships” to allow some owners to participate as investors only.

While the selection of the appropriate business entity will depend on numerous factors, the primary purpose of most entities is to shield owners from individual liability. Operating a business that is not set up to provide limited liability means that the owners are putting all of their personal assets within reach of the business’s creditors. By working with an attorney at the inception of the business, this situation can easily be avoided.

Business law attorneys are also available to draft the internal agreements that will control how a new company is managed. A common example is an LLC operating agreement. This document should be drafted with care, as it governs how the company’s owners will share profits and losses, make important business decisions, and transfer their ownership rights.

Navigating Complex Transactions

Some commercial transactions are within the ability of business owners to handle on their own. Others are not, especially when a deal touches on complicated and evolving areas of the law, such as securities regulation or internet commerce. In heavily-regulated industries in particular, companies rely on their in-house or hired lawyers for advice regarding the latest legal developments affecting their businesses.

Even for savvy business people, problems can develop when emotions become involved. Attorneys can provide valuable insight into a transaction, not only because of their legal training, but also because of the objective nature of their analysis. This allows them to spot issues overlooked by business owners and managers who may be too emotionally invested in seeing the deal go through.

Preemptive Measures to Avoid Litigation

One way to distinguish business law as its own field of practice is to take note of when these issues arise. Business law provides rules and guidance for companies to follow before disputes occur. Attorneys who practice in this area are experts at structuring transactions to minimize the company’s exposure to litigation. This sort of strategic legal maneuvering can end up saving the company huge amounts of money.

Consider the example of a services company headquartered in one state, with customers all across the nation. The company might hire a lawyer to draft customer agreements that require customers to follow specific dispute procedures, such as giving the company an opportunity to remedy deficient services before a legal claim is made, or providing that disputes must be submitted to arbitration in the company’s home state. In every industry, there are opportunities for business attorneys to save their clients money and provide them with a greater competitive advantage.

Hiring Legal Counsel

If you operate an existing business or plan to launch a new one, your success may depend on obtaining the right legal advice. Attorneys are available to assist with everything from simple buy/sell agreements to mergers and acquisitions of publicly-traded companies. Schedule a consultation with a business law firm today.