An Overview of Business Law
Business law is not a particularly well understood part of the law. That is to say, most people don’t know much about what is considered to be "business law" in the first place. Probably, that is because business law does not have the high profile of criminal law or dog-biting-on-a-walk laws. Most people do not spend time thinking about the law unless it actively confronts them or their family in some way. When it does, they realize how important having knowledge about the law can be.
Most people are likely not to meet a litigator lawyer, which is the majority of lawyers. Accordingly, their contact with lawyers is often limited to what they get from coworkers or friends about the law. However, business law is almost always apart of life — and that is why it is valuable to learn about it.
Business law covers a number of topics. It involves real estate law, securities law (for stock traders or hedge fund folks) , and intellectual property law (for inventors and certain business sectors). It also covers insurance law, due diligence issues for certain businesses, determining partnership agreements, cleaning up contracts between parties, litigating lawsuits between business partners, and much more.
Essentially, business law is supposed to cover all the ways you and your business interact with other people or other businesses. As it gets further away from those two subjects, such as with real estate law, business law becomes less useful. You certainly don’t need a business lawyer to write up a deed transferring one piece of property to another person. That is more of a real estate lawyer issue.
A business law attorney is supposed to help with the legal environment you and your business find themselves in at that time. A good business lawyer is supposed to be able to figure out the law as it pertains to the specific subject matter and help you understand what you need to know moving forward.
Major Aspects of the Legal Landscape
The legal environment consists of a plethora of laws, rules, standards, and regulations that govern business operations. The major components of the legal environment are based on an intricate network of statutes, case law, administrative regulations, and international law, that together create an all-encompassing framework in which businesses must operate. This framework ranges from federal and state agencies with their formalized regulatory structures to local and municipal agencies that oversee city ordinances and regulations.
Many businesses include an officer or partner whose responsibility it is to ensure compliance with these laws and regulations and the various government agencies that enforce them. However, even small business owners need to ensure that they are in compliance with zoning requirements, building codes, licenses, permits, and regulations that might be enforced at the county or municipal level. With so many agencies involved, it is easy for a statute or regulation to be overlooked, resulting in violations or fines. Moreover, many government agencies have special investigators, auditors, and examiners who specialize in identifying, evaluating, and enforcing compliance with statutes and regulations.
As with any body of law, the legal environment is constantly changing with the passage of new statutes and regulations and the promulgation of new enforcement policies. In addition to basic laws like contract, intellectual property, employment, and personal injury, the legal environment also includes many specific laws that address areas such as tax, bankruptcy, immigration, antitrust, banking, labor relations, collective bargaining, land use, environmental, and commodity markets. In many instances, especially in large cities and highly populated areas, there also may be additional city ordinances in place that affect businesses.
Beyond compliance requirements, the legal environment may dictate when and how non-business disputes are handled. For instance, depending on the type of legal dispute involved, certain issues may need to be addressed in state or local court, through arbitration before a tribunal, or before an administrative agency. There also may be limitations periods, procedural requirements, or other considerations that have to be addressed to protect a client’s rights. Even the rights that a business has in its own IP or business processes may be limited by contractual agreements with its employees or other companies.
Government’s Role in Business Law
Government entities in the U.S. shape business law on several levels. Federal and state governments create laws that apply to individuals and business owners, including corporate governance, intellectual property, unfair competition, securities regulations, tax implications, antitrust laws and executive orders. Diplomatic and economic policy will also affect flow of commerce both domestically and internationally. Rules and regulations set by federal agencies are also legally binding. The U.S. Securities and Exchange Commission, The Federal Trade Commission, The National Labor Relations Board, The Consumer Product Safety Commission and The Equal Employment Opportunity Commission. These agencies create rules and regulations to affect business practices in response to the powers given them by legislation passed by Congress. Laws and agency rules set by government directly affect businesses and the way they conduct affairs. Businesses in turn must respond to the regulatory environment the government has created with prompt legal action.
Corporate Governance and Regulations
Corporate governance and ethical standards are critical factors in today’s global business environment, including the Ukraine economy. Corporate governance refers to the way in which companies are directed and controlled, with a focus on maintaining a system that ensures the interests of owners/employees/shareholders/stakeholders are protected. In simple terms governance ensures the company is run in such a way to produce the maximum benefit for all stakeholders. It is a collection of processes, customs, policies, laws, and institutions that determine how the company is administered and managed.
Ethical standards are an important component of corporate governance as they enable the company to act in a responsible manner compliant with the law, and to proactively addressing the expectations of the community at large. Ethical standards need to be set at the top of the organization, in order that the entire organization from the CEO to casual employees, is governed by a set of values and principles the organization believes in.
Many organizations adopt codes of ethics or conduct, which sets the standards of behavior expected of officers, directors, managers, staff, members, etc. Although codes of ethics are not usually legally binding, (unless incorporated into a legally binding contract), they have a powerful effect on the way in which the organization is seen by the community at large. By adopting a code of ethics a business is making a public statement of what it believes in and what it stands for. It may be an aspiration that much is not lived up to, but setting the standard positively influences behavior amongst stakeholders.
From a practical perspective, the company should appoint a Governance/Compliance Officer, who will oversee and administer a code of ethics. The audit of the content of the code will be the responsibility of the board of directors, and approval and monitoring of compliance will be the duty of the Audit Committee.
The content of the code of ethics, which may be referred to as a code of conduct, should reflect the culture of the organization. There is no ‘one size fits all’ code of conduct. A proper consideration of the content of a code of ethics will take into account the products and services the company provides, the industry in which the company operates, the geography of the company’s operations, the stakeholders relevant to the company and their needs.
Involvement of those responsible for compliance with the code is desirable when preparing its content. That usually includes the audit committee, with the board of directors overseeing the process.
The code of ethics is a living document that should be reviewed at least annually.
Legal Risks and Business Risks
Businesses face a multitude of potential legal risks and liabilities, which may stem from a variety of sources including non-compliance with regulations, contractual obligations, employment practices, and disputes with customers or vendors. In terms of regulatory compliance, businesses should be aware of the scope of regulations to which they are subject based on their industry. For example, licensed professionals such as doctors, nurses, accountant and attorneys typically are subject not only to business licensing requirements, but also to standards of care to which they must adhere in their professional work. Some regulations may be unique to a particular industry, such as banking and insurance, while others are more general, applied to most industries, such as the law of contracts and torts concerning relations with other businesses and customers.
Liability may occur as a result of several different types of risk. For example, a company may experience significant liability as a result of a breach of contract, or as a result of an inadvertent breach of the law, such as violation of the federal Fair Credit Reporting Act . If a customer fell ill as a result of consumption of the business’ food product, the business could face liability under contract and tort law, as well as from federal consumer protection regulations. Because businesses rely on a variety of relationships with other business entities, it is important to consider risk of liability from all of these sources.
Considering the potential breadth of business legal risks, there are a number of risk management strategies available to minimize exposure to these risks. For example, developing a list of potential legal risks specific to your business can help you develop and implement various policies and practices to minimize exposure to those risks. Another approach to minimizing risk is to consider alternative business structures that may provide additional liability protections. For example, forming a limited liability company instead of a corporation or forming a corporation instead of an LLC might reduce potential liability in some situations. Some businesses may also consider bundling risk through a combined business structure, which may provide the advantages of different business entity types while minimizing the risks of each.
Case Law on Business Legal Issues
The legal landscape is a crucial factor in the success of any enterprise. It can present opportunities or pose challenges, depending on how well a business understands and applies the law. In this section, we will explore several case studies of businesses that have successfully navigated the legal environment, illustrating the range of issues that legal counsel can help a business address.
Case Study 1: Intellectual Property Protection for a new Technology When XYZ Corporation developed a state-of-the-art software system for healthcare payments, it immediately filed for patent protection. The developer of the system was its founder, a visionary engineer who put together a team of codemakers to create the software. Unfortunately, the coder compiled the code for the entire project into one document, rendering it vulnerable to the theft of the intellectual property. After the start-up was sold to a larger company, the new owner discovered that it was possible to make copies and distribute the code and software program over the internet. By hiring an intellectual property attorney to file a patent application, the patent holder was able to obtain protection for its proprietary technology for a period of twenty years. Any use of the technology requires permission from the patent holder and payment of royalties on sales.
Case Study 2: Labor and Employment Issues ABC Widgets, Inc., hired its first employee despite not having consulted an employment attorney. The Board of Directors could not agree on whether to classify the new employee as an independent contractor or employee. The disagreement was short-circuited by the fact that the new employee was a family member of the CEO and founder of the company. For simplicity, the Board decided to categorize the new employee as an employee. ABC Widgets set up regular payroll and provided for all benefits and paid required taxes for the new employee. As sales increased, ABC Widgets started hiring and firing employees. It continued to hire and fire employees without consulting an attorney. Although the new employees were hired as independent contractors, they were treated as employees with classification inconsistencies. The independent contractors were paid on a 1099 tax form, while regular employees were paid bi-weekly. The 1099 independent contractors did not pay any Social Security or Medicare tax. It did not matter in the beginning because no one complained of tax withholding. The exempt employees filed a complaint after 7 years of service wanting back pay and tax withholding deduction from their salary. The complaint was filed with his state Department of Labor and expanded to include the entire 250 workforce. The plaintiff class action lawsuit cost the company millions in settlements with the state. It also had to pay large fines due in part to its ignorance of labor and employment law. ABC Widgets made the costly mistake of trying to manage employees without counsel. It could have saved millions of dollars by hiring an employment attorney to help it develop an employment manual that addressed all relevant labor laws for the benefit of the entire workforce.
Case Study 3: Contractual Issues A large food manufacturer entered into a contract with a grocery store to sell its product. The grocery store refused delivery of the product after the refrigerated semi-trailer truck driver arrived. The grocery store claimed that there was a mistake in the order of products. The driver completed the order based on the written invoice that arrived with the shipment. Although the agreement was in writing, it lacked an arbitration clause. Consequently, the manufacturer retained an attorney to seek a remedy. In turn, the grocery store retained an attorney to defend the breach of contract claim. They were not able to agree on a resolution to the dispute and ended up going to court. After a lengthy legal process, the court awarded the manufacturer the entire damages is requested.
Emerging Trends in Business Law
As digital transformation continues to impact modern commerce, existing legal frameworks and regulatory approaches will need to adapt to many new challenges. The emergence of increasingly complex technologies, such as artificial intelligence, blockchain, big data analytics, and the Internet of Things (IoT) are certain to prompt significant regulatory responses in the years to come. Regulators around the world are likely to explore new and innovative ways to set clear guidelines for what can, cannot, and should not be done in the digital economy.
The next few years will also be very impactful for international trade law, particularly with the roll-out of new privacy laws across the EU. The much-anticipated General Data Protection Regulation (GDPR) will go into effect in 2018, and is likely to significantly affect how businesses deal with data. With these new rules already creating a lot of uncertainty in the EU region , it will be interesting to see what other jurisdictions will do in response; particularly in cases where data flows across international borders. New rules in the EU may encourage other countries to adopt similar legal standards, although it will be up to the discretion of each government whether or not to follow the EU lead.
The new GDPR will also have a serious effect on how the EU deals with national security. Considering recent developments surrounding the United States present a serious challenge to EU data protection rights, it seems increasingly likely that the two sides will have to sit down soon and discuss what practical security arrangements will look like. It is unlikely that the U.S. will give up its current practices, so, this will undoubtedly stir tensions between the European Union and the Trump administration in the months to come. As an oversimplified version of the matter, Europeans want to keep their data subject to EU law (regardless of where it is located physically), whereas the U.S. prefers to access its data infrastructure as it sees fit (particularly for purposes of national security).