Business Law Overview
Business law, broadly speaking, is the body of law that governs the rights, relations, and conduct of persons and businesses engaged in commerce, merchandising, trade, and sales. In more specific terms, it is the set of legal rules and principles that are relevant and applicable to the business and commercial world. It contains rules and principles from every area of law; from establishing a new company, to negotiating a contract, to closing a sale, to dealing with financial issues like bankruptcy.
At its core, business law encompasses three main areas. These include the formation and operation of business entities, the regulation of commercial paper, and securing and enforcement of creditors’ rights. Such major categories consist of one or more of the subfields or specialized disciplines of business law. Therefore, when asked what business law is a lay person can essentially dismiss the question by saying it is a little bit of everything when it comes to organizing and managing a business. Alternatively, a lay person could respond by saying business law is contractual law, employment law, and corporate law.
Contract law, or the law that governs contracts for the sale of goods and services, is one of the most significant concepts in business law. A contract is a legally enforceable agreement. Contract law determines when such an agreement is legally valid and when it is not . This is important because a contract is enforceable by law so if you do not own a particular piece of property (real estate), but you contract to buy it, and then do not pay for it, then the person you contracted with to buy the property may sue you in court.
A business can also be brought to court for a variety of reasons. That is why another significant field of business law is employment law. Employees often have statutory rights and protections and their employers need to know and understand those rights and protections. This is particularly true if the employer wishes to terminate the employment or discipline the employee. An employer’s ignorance of the law can make sometimes a very simple situation become costly and time consuming.
The last main area of business law that should be generally discussed is corporate law because it is perhaps the most essential area of business law for new companies to be familiar with. Corporate law is the body of rules and regulations and precedents determining how corporations are created and dissolved. It deals with the rights and liabilities of all individuals involved with companies, including shareholders, officers, directors, creditors and even employees. It is also the reason why businesses must choose what type of business organization to form, whether it is a corporation, limited liability corporation, sole proprietorship, or partnership.
Major Regulations
Federal Trade Commission (FTC)
The FTC is an independent agency that promotes consumer protection and eliminates anti-competitive business practices. To accomplish its goals, the FTC regulates and enforces consumer protection laws, investigates and shares information about the behaviors of businesses and other government agencies, investigates and tries to prevent fraud and deception in advertising and marketing, conducts consumer product recalls, promotes competition, improves consumer access to original research, curbs privacy invasions, and protects customer funds held in trust.
Securities and Exchange Commission (SEC)
The SEC is the main regulator of securities (stocks, bonds, options, etc.) in the United States. Its mission is to protect investors, maintain fair markets, and facilitate capital formation through the regulation of securities sales by issuers and broker-dealers. The SEC accomplishes its mission through education, compliance assistance, and enforcement of the security laws.
Occupational Safety and Health Administration (OSHA)
The mission of OSHA is to ensure safe and healthful working conditions for employees through the adoption and enforcement of workplace safety and health standards. OSHA works with employers and employees to develop regulations, training programs, and cooperative programs in order to promote workplace safety.
How Regulations Affect Business Strategies
The impact that regulations have on business strategy is significant. It touches every aspect of an organization and affects, among other things, growth decisions, hires, product lines, how the workforce is administered, and how resources are allocated. For instance, new compliance requirements for securities can make it more difficult to enter the public markets, and new limits on certain high-volume sales practices can force a company to rethink how it reaches consumers.
Due to the breadth of compliance requirements, companies must be aware of how policy affecting their industry impacts their bottom line. As regulations continue to increase, many companies seek to move into more "compliance light" industries, or use their compliance with laws in one jurisdiction as a basis for proposing similar regulations elsewhere to create a competitive advantage.
Compliance and business strategy are inextricably linked. While most issuing entities strive to provide clear, coherent, and self-sufficient standards, all businesses must also realize that they operate in a vast regulatory landscape that requires a robust compliance strategy to manage.
Mitigation and Management Strategies
To effectively navigate the legal and regulatory environment of business, it is essential to establish a robust compliance program. Compliance programs are designed to ensure that all employees are aware of both applicable internal policies and external regulations, and understand their importance in maintaining corporate integrity and avoiding liability.
In implementing a compliance program, it is crucial to identify all relevant laws and regulations that apply to your business. This includes industry-specific regulations, as well as employment laws, licensing requirements, health and safety standards, data privacy laws, and any international regulations that may apply if your business operates globally.
Once you have identified all the relevant requirements, the next step is to effectively communicate these requirements and implement corresponding policies and procedures. It is common in government enforcement actions for regulators and prosecutors to pay particular attention to the question of compliance . In other words, an organization that does not have an effective compliance program is at a much greater risk of investigations and enforcement actions than one that does.
For most businesses, a "one-size fits all" compliance program often does not work. Therefore, it is important to tailor your compliance program to fit your company’s specific needs. Throughout the development and implementation of your compliance program, it is important to regularly evaluate and revise the program as needed.
Once a compliance program is implemented, it is important that a system for monitoring and evaluation is developed. One common method for evaluating compliance programs is through the use of audits and compliance metrics. These metrics help employers to make adjustments to the compliance program where necessary, and to detect potential legal liabilities.
To avoid costly litigation, businesses should keep detailed records of their efforts to establish and implement compliance programs. Documentation of compliance efforts can help lessen penalties in the event of an inadvertent violation.
International Law
For companies established or that plan to conduct business internationally, a good understanding of the export and import markets, tariffs and customs regulations, foreign investment environments, and international trade laws can have major impact on business success. Foreign markets may offer attractive opportunities, but the laws governing these opportunities are not universally compatible with U.S. laws. In particular, regulations regarding competition, pricing, force majeure, and just cause are administered in different manners.
Accordingly, when dealing with international sales, it is important that businesses understand the customs issues that may be involved, explore trade preferences, and seek qualified, local counsel for assistance in those nations that will be affected by the transactions. Similarly, if the business plans to invest in foreign countries, it will be important to understand regulations related to exchanges, remittances and other details related to international investments.
Many countries are also members of an international law organization known as UNIDROIT, which is shorthand for the International Institute for the Unification of Private Law. UNIDROIT promotes the modernization and harmonization of private law among its member countries and monitors the civil law systems of the world.
Future Directions of Business Regulation
As we move toward the future, additional trends and changes in the legal and regulatory environment of business are emerging. Antitrust legislation is likely to affect businesses in the near future. For example, the National Advertising Review Board, which operates the National Advertising Division of the Better Business Bureau, is working with federal antitrust agencies to encourage voluntary compliance with self-regulatory guidance. The goal is to avoid unnecessarily costly litigation while creating a unified self-regulatory platform for advertisers to follow. Internet-based businesses face invasion of online privacy. Because Internet users can be tracked and data collected on their online activity, enforcement agencies will work with companies to ensure that appropriate safeguards are implemented to protect consumer privacy. The upcoming regulation of online and mobile behavioral advertising using tracking technologies such as browser cookies will also be impacted . Actors in the space will attempt to develop universal standards to support relevant and honest online advertising while giving consumers more control over their information and its use. Crowdfunding – the practice of raising funds by asking large numbers of individuals to contribute small amounts of money through a variety of Web-based platforms – will soon come under increased scrutiny. With state and federal regulators beginning to focus on the sale of unregistered securities to individuals in exchange for a stake in a new business, crowdfunding has never been more important. As a result, companies will have to keep pace with new regulations to ensure they are following the most current laws. The future presents a host of potential changes to existing laws or new laws that will affect the legal and regulatory environment of businesses. Companies must stay informed on these developments to ensure full compliance with all laws.
