What Is Business Law?


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What Is Business Law?


Business law can be puzzling to many new business owners. Put simply, the definition of business law is “The combination of statutes and court rulings that govern everything that concerns your business operations”.

Also known as commercial law or corporate law, this area of law addresses a wide variety of legal issues regarding business formation, contracts, mergers and acquisitions, franchising, intellectual property, and employment law, among others. 

Commercial law includes two aspects:

  • The administration and regulation of partnership, agency, bankruptcy, and laws for commercial entities
  • The legislation of business contracts. 

Over time, laws have changed and have to adjust to the progress of technology, industry regulations, and the ever-evolving demands of society.

Business law and its importance

Business law plays an important role in regulating entrepreneurial activities while making sure the business owner and their clients are both protected. Commercial law governs how corporations are managed by the state, the contracts between business owners and investors, and the contracts that govern business relationships. 

Here is why corporate law is key in commercial transactions. 

  • Regulatory compliance

It’s crucial to meet all the legal requirements, which may vary depending on the industry a company operates in. A business lawyer will ensure the shareholders understand their rights and obligations as business owners, and that all the documents, licenses, and demands are in compliance with the regulations. Also, along with an accountant, a corporate attorney will help business owners to address tax concerns.

  • Avoid litigation

The purpose of business law is to identify potential legal issues and take the necessary actions to prevent them. Corporate attorneys create guidelines that companies must follow in order to avoid disputes, and the actions they must take in case issues arise to facilitate a solution. With the right contracts and abiding by government regulations, businesses are able to continue their commercial activities without exposing themselves to liability. 

  • Safeguard the rights of the parties

With enforceable contracts, a qualified commercial attorney will secure the rights of the shareholders and reduce the liability of each. 

Functions of commercial law

Business lawyers help with addressing corporate legal matters and issues. Commercial attorneys can assist businesses in

  • Avoiding consumer violations
  • Limiting liability
  • Organizing their firms
  • Avoiding antitrust violations
  • Putting in place solid contracts and business procedures to reduce the chance of litigation and responsibility.

Here are the specific aspects of a business where lawyers can come in and provide legal assistance.

  • Business Formation

Business lawyers can help business owners set up their corporate structure. Choosing the right business entity is important for protecting your liability and getting the best tax savings benefits. For example, they may assist with employee recruitment and create, arrange, and manage legal documents on employee support. They may also deal with any additional paperwork to legalize any changes in business type or structure.

In case of lawsuits concerning business structure or roles, or disputes within the company, business lawyers can assist the owner in taking the next right step. In addition, successful corporations often have a business lawyer in-house or on retainer to ensure the protection of assets and intellectual property as the company continues to expand.

  • Contracts

Contracts play an important role in business law. It is essential to have some background in legal language to understand all the complex terms in a contract and make sure you are aware of your rights and obligations in the commercial transaction.  Some parties may try to take advantage of you and your business by inserting clauses that are unfavorable to your interests. They could even modify the contract’s terms.

Contracts ensure that both parties involved in the transaction are on the same page. Business lawyers can assist you in ensuring that your company’s best interests are protected when it enters the terms of the contract.

After a contract is legally formed, both stakeholders are generally expected to follow the contract’s provisions. However, a breach-of-contract claim arises when one (or even both) parties allege that the other failed to fulfill any of the contract’s elements and commitments without grounds.

Why should your business not breach a contract? Simple. You put your company’s reputation at risk. Customers do business with you because they believe in you. If you break your contract, you risk damaging your reputation and making it more difficult for other companies to cooperate with you in the future.

A consumer contract is a legally enforceable agreement between you and the customer. It covers the sale of goods or digital material, as well as the provision of services. To fully comprehend your legal obligations when selling to consumers, you must first recognize how and when such a contract is formed.

You’ll also need an exhaustive understanding of contract terms to ensure that the contracts are fair to customers. But, again, these aspects of managing one’s business are covered by the expertise of business lawyers.

Business lawyers can also help you review existing contracts before making business decisions. This step makes sure you won’t be violating any terms or conditions.

Without legal assistance, you may make business decisions that put your connection with the other party at risk. Even if you are dissatisfied with the agreements, there are better methods to settle the issue than to break it. Breaching almost invariably results in the severance of all future ties with the other party.

While you may have valid reasons for breaking a contract, keep in mind that the agreement you signed is enforceable by law. Therefore, you should get legal advice from a notable business lawyer before doing so.

When it comes to business-to-business contracts, the legalities and range of issues are quite different. B2B contracts usually do not have cooling-off periods, which means there is no space to leave the contract in case you change your mind.

In some cases, you may avail of provisions for leaving contracts early by giving a notice or paying a termination fee. However, to make sure you’re not being made to pay beyond what’s necessary, it’s critical to seek the help of a business lawyer.

  • Mergers and Acquisitions

Business law is also an important element in M&A. A merger is a process where two companies integrate to form a single new entity. Also known as consolidation, a merger occurs when two firms unite to produce a new company in which none of the previous companies stays independent.

Why do companies merge? Companies will be able to gain more resources and expand their operations as a result of the merger. A company may merge to benefit its shareholders. Following the merger, stockholders of the original businesses receive shares in the new firm.

Corporations may agree to merge to enter new markets or diversify their product and service offerings, resulting in increased profitability.

For example, a corporation with considerable taxable income may try to merge with a company with a significant tax loss to reduce its tax liability. A merger of companies will minimize rivalry between them, lowering the cost of advertisements. Furthermore, the price reduction will benefit customers and, as a result, sales will improve.

Mergers may result in better financial resource management and allocation.

Meanwhile, acquisitions are transactions in which one corporation buys the property of another. An acquisition, sometimes known as a takeover, is the ownership of one firm or enterprise by another.

Acquisitions are usually classified into two categories: “private” and “public.” The difference is drawn depending on whether the target company’s shares are publicly traded or not. In addition, acquisitions can be classified as friendly or hostile, based on how the business organization sees the acquirer.

Why make an acquisition? Companies buy other businesses for a variety of reasons. For example, they may be looking for cost savings, diversification, higher market share, improved efficiency, or new specialized offers. Other motives for acquisitions include international market entry, expansion strategy, and the addition of new technologies.

Both mergers and acquisitions involve complex legal paperwork. It’s key to have a solid background in business law to ensure that all the state regulations concerning the merger or acquisition will be followed. It also prevents disputes in the future and keeps the business owners protected in case issues arise between the parties involved.

  • Industry Regulations

Many industries have their own set of rules that apply to businesses operating within their sphere. Regulations ensure that your business follows the standard for a particular sector.

Industry regulations include rules for forming a company, managing personnel, privacy laws, trademarks, and consumer protection. All businesses are affected by these general industry regulations.

Business lawyers help with compliance with industry-specific regulations. Unfortunately, many business owners are far from being well-versed in compliance, so they would need legal counsel to ensure their operations or products do not violate any of these rules. Your business attorney can provide the most appropriate legal advice. 

The importance of having a business lawyer for your company

Financial management, performance monitoring, raising competencies, attracting new workers, customer service, reputation management, regulation, corporate expansion, and compliance to industry-specific rules are all potential business concerns.

Business law requires a vast understanding of policies, laws, and special guidelines that vary widely by state, which is why having a business lawyer is extremely necessary for your business. An attorney will look out for the best interests of your company and safeguard it against the numerous problems and difficulties that may arise during your operations.

With a knowledgeable commercial lawyer on your side, you may be better prepared to resolve the issues that could impair your ability to run your company successfully. Your attorney could even help you develop a successful formula to get you to achieve your business goals.

When companies do not have the proper legal guidance, they fall into two common mistakes. One of them is not having the proper business agreements between business owners. When conflicts arise, the business owners end up in a lawsuit costing tens, if not hundreds, thousands of dollars. In addition, the business itself is often forced to dissolve not only because of the high legal bills, but because the business owners failed to agree on certain fundamentals of the business.

Another costly mistake is not having the proper business-to-business (B2B) contracts. The problem is the same as above– the businesses will end up in a dispute, and not before long, are suing and incurring legal bills and having their business operations compromised.

Having the proper business documents and contracts is absolutely worth the up-front investment and consideration. Otherwise, you risk losing your reputation, business, and a ton of money.

For the reasons explained above, a considerable understanding of business law is necessary for the well-being of a company and its business relationships.

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