What is Business Law? |Types & Overview – Video & Lesson Transcript | Study.com

Employees are protected with job security by their contracts and by several laws such as the EEOC.

Examples of Business Law

Every business owner needs to know how to navigate the legal landscape. Business law is a broad and highly diverse field, with different sets of laws that apply depending on the type of business or industry. This includes employment law, intellectual property law, contracts law, and limited liability.

• Employment Law: The concept of employment is simple. You have an employee, hire a company, and they work within the company’s premises for an agreed-upon amount of time. An employer has the responsibility to provide a workplace that is safe and conducive for work, as well as any benefits that are required by law.
• Intellectual Property: Intellectual property refers to creations of human intellect such as new products, ideas, or information that can be used without permission from their creator or owner. A person can create an intellectual property by writing a book, designing a website, designing a game, or designing clothes.
• Contracts: Consumers often make use of contracts to protect their rights and interests in a transaction. A contract is a legally binding agreement between two or more parties that establishes the terms under which they will interact with each other. The terms can include the rights and obligations that each party has in relation to one another, as well as any other relevant information pertinent to their relationship. Contracts can vary widely in complexity from a simple handshake agreement to an elaborate multi-page contract involving several different parties and several different types of objects.
• Limited Liability: A limited liability or an L.L.C. helps companies to increase their capital, invest in risky projects and virtually create new ventures without incurring any financial risk. The potential of lower risk may encourage companies or persons to invest in endeavors or start a company. The most common types of L.L.C’s are partnerships, general partnerships, limited partnerships, and corporations, but any business entity can be formed as an L.L.C.-such as an LLC or a cooperative- if formed according to the law of the state where it was formed.

Business law is a vast field that is divided into different branches within the different processes.

Branch 1: Starting Business

The process may involve the creation of articles of incorporation, by-laws, and other documents that establish how the entity will operate, pay debts and taxes, finance capital needs, elect directors and officers, provide for shareholder protection, resolve disputes among shareholders/directors/officers/employees, etc., share ownership benefits among shareholders, etc.

Branch 2: Buying Business

There are many legal and financial implications that come with buying a business. Some of the factors considered before purchasing another business are costs, legal issues, taxation, and human resources.

The process for buying a business includes the following branches:

1) Due Diligence: The buyer must perform their own due diligence to find out as much information as possible about the seller, such as financials, background, current operations, and industry knowledge.

2) Due Offer: After performing due diligence, the buyer presents its offer to the seller. This is considered a conditional offer that can be accepted or rejected by either party. After rejection, both parties will present counteroffers until they reach an agreement on the price and terms of sale.

3) Negotiation: The negotiation is now going to be focused on price adjustments and other aspects such as delivery time, delivery location, etc.

Branch 3: Managing Business

The process of managing a business involves clearly understanding the various branches of law that apply to the company, such as how to properly deal with contracts, managing finances, dealing with liabilities, and many more.

Branch 4: Closing Business

There are two ways to close a business – either by liquidation or reorganization.

1) Liquidation: Liquidation occurs when a company has no debts and the owner sells all the assets.

2) Reorganization: Reorganization occurs when there is debt on the books and the owner wants to pay off creditors before closing down.

Forming a Business

The first step to starting a business is deciding on the type of business entity to form. The type of entity will determine what legal obligations the business will have and any potential liability.

Types of Business Law:

Sole Proprietorship

Sole proprietorship is an economic term that refers to an unincorporated company that consists of the sole proprietor who owns 100% of the company’s assets and liabilities. A sole proprietor may also be referred to as a “self-employed” or “independent” contractor. The owner owns all assets, liabilities, and profits or losses. Sole proprietorships are taxable entities and can operate as either an S-Corporation or C-Corporation.

Partnership

A partnership is a relationship between two or more entities that are legally recognized as a single entity for the purpose of carrying out an activity with a view to earning profit. It is typically formed to advance shared interests, goals, etc. A partnership is one of the most common business types in the USA and Canada. In the USA, a partnership is recognized as a legal entity with limited liability protection offered by the government.

The word “partnership” has many meanings and can refer to a number of different relationships of an economic nature. Some common types include:

1) General Partnership: A general partnership may be formed when all the partners agree on being equal partners in the business and share in risk taking and profits equally.

2) Limited Partnership: A limited partnership is a type of partner with fewer than all general partners in total number (limited partners).

3) Joint Partnership: A joint partnership is a business type that refers to a pair of related companies, one of which has an indefinite life and the other which has a limited life. Joint partnerships are often used in mergers, acquisitions, or divestitures.

Corporation

A business is a corporation that is created by a group of individuals who share in the ownership and profits of the company. A business partnership is a form of a joint venture in which two or more parties agree to pursue one or more businesses together.

A corporation is defined as an entity that is owned by stockholders and exists under a charter granted by the government. These types of businesses are created for profit and should not be confused with nonprofit organizations.

Corporations are often seen as having two main legal forms: general partnerships and limited partnerships. These two types have different taxation laws and are designed for different purposes.

Limited Liability Company

An LLC is a limited liability company that is designed for business owners to have protection of their personal assets in case of a lawsuit. The owner of the entity will be liable only up to the amount they put into it while all profits and losses are treated as separate entities on paper. This helps reduce the risk for one enterprise while also creating tax advantages, especially when the company makes more profit than it’s required to pay taxes on.

S-Corporation

S-corporations are a type of corporation that is exempt from certain taxes, allows for great flexibility, and has no mandatory retirement. The S-Corp is the ideal entity for businesses that have a few owners or partners.

A typical S-Corporation has three types of owners: (1) stockholder, (2) employer, and (3) members. The employers are the members and must be incorporated or recognized for for-profit or nonprofit purposes. The stockholders can be individuals, corporations, trusts, estates, partnerships, associations, and cooperatives.

Buying a Business

Potential buyers should first decide whether they want a sole proprietorship or an incorporated company structure. The second option is much more complicated but also offers more protection for the purchaser in case of disputes with employees or other stakeholders.

When buying a business, there are key aspects that need to be considered such as liability for personal injury and other claims and ownership rights to intellectual-property assets such as patents and trademarks.

When choosing a company to purchase, it’s important to determine which party will take on liability for debt. The most important consideration is whether or not the business you want to purchase is reputable and financially sound.

Another aspect of purchasing a business is conducting an employment-related due diligence search on the potential seller. This means looking through public records and news articles related to the company and its employees and any outstanding contracts. It is also beneficial to get in touch with the state’s Department of Labor or Employee Rights Office, depending on the purchaser’s particular legal jurisdiction, as they can give guidance on what rights employees have during this transition period. A potential buyer must also consider the EEOC’s (Equal Employment Opportunity Commission) laws regarding employee rights during business transitions.

The concept of many hands makes for light work is especially applicable when it comes running a business.

Managing a Business

Other than the day-to-day logistics of managing a business (such as production and employee management), there are three major areas a business owner needs to consider when it comes to lawfully managing a business.

Contracts

A contract can be defined as an obligation, a promise, or a pledge between two parties that contains certain terms that legally bind them. A contract can also be described as an agreement made between two or more people, groups of people, companies, or states with the intention of settling disputes through negotiation rather than through legal process.

Contracts are usually drafted on paper and signed by both parties, but some contracts may require more formalities like having a notary present. In order to make sure that both parties involved in the agreement are treated fairly, it is important for them to follow some rules of engagement such as understanding their role in the relationship. These include: receiving feedback on their performance, being clear about expectations, and making sure that all conversations are documented.

Managing Finances

A company’s financial health can be measured by its cash flow and balance sheet. The company should have enough cash available to spend on marketing or other initiatives without having to borrow from banks. If not, it might need additional funding from investors or banks

An accountant is responsible for keeping a company’s books balanced by ensuring all transactions are recorded accurately on both the company’s ledgers as well as its financial statements. They ensure that the company has a clear picture of its financial health over time which helps executives make informed decisions about the future and how to maintain a successful business.

Dealing with Liabilities

The task of managing a business is largely made up of dealing with liabilities. This includes understanding what risks are involved in the business and how to minimize them as much as possible. In order to do so effectively, one needs to have good knowledge of what liabilities are included in the business model; what kinds of risks they pose; and how to avoid or mitigate them.

The following are some of the common liability risks that a company may face:

• Data breach
• Cybersecurity
• Intellectual property theft
• Product liability
• Damages
• Injuries

Closing a Business

A significant part of business law includes aspects related to the closing of a business. It is important to know how to close a company in order to avoid unnecessary financial risks and liabilities.

There are several legal requirements that must be met before a business can be closed. The following are some of the most common:

• Corporations need shareholders’ approval,
• The corporation needs a written resolution,
• The corporation needs an independent appointment.

Closing a business is the point where a business ceases to exist. There are different types of closing that to choose from, such as:

1. Voluntary bankruptcy: Voluntary bankruptcy is a legal status whereby an individual is permitted to (and chooses of their own volition to) refuse to fulfill their obligations, and still be considered legally responsible for those obligations as well as any other debts they may have contracted.

2. Involuntary bankruptcy: Involuntary bankruptcy occurs without the consent of the debtor. A debtor who wants to file for involuntary bankruptcy has to meet a set of requirements. In order to be eligible, they must meet specific criteria (e.g. they might have had an income below 50% of their average income over the last 12 months).

3. Liquidation: Liquidation is the process of selling a company’s assets as a way to repay its debts and other unpaid liabilities.

4. Merger: A merger is an acquisition of one company by another. It can be a takeover deal or a friendly merger. As an acquirer, the company that is acquiring the target company has to pay the target’s shareholders in cash or stock.

5. Sale: Business sales are a common type of business transaction that is not uncommon to execute or go through. They typically involve the sale of all, or a major portion, of the ownership interest in a business.

Lesson Summary

Business law is a body of law that deals with the conduct of business. It is regulated by a body of rules and principles, created by various legal institutions including legislatures, courts, regulatory agencies. In general, business law can be described as the collection of rules that act as guidelines for what is appropriate in the operation and conduct of a business. In this context, “business” includes all types of companies such as public corporations, partnerships, L.L.Cs, and sole proprietorships. When forming and managing a business, it is important to understand the ramifications of forming legal agreements (such as contracts) to stay in good standing. When a contract is not completed, by either the company or the recipient of the product, this is considered to be a breach of contract.

There are several types of liabilities that a business can face. One such example is a tort liability. A tort is a civil wrong or injury that gives rise to a legal claim for damages, typically compensation for loss of money, property, or personal injury. In order to avoid liabilities, businesses need legal teams that are familiar with local, state, and national laws such as the UCC (The Uniform Commercial Code).