Knowing the Basics of Business Law
Understanding the Basics: What You Need to Know About Business Law
In order to effectively navigate the legal and regulatory environment of business, it is essential that you have some understanding of business law. Business law refers to the set of laws that regulate how businesses can operate. It is generally divided into two major categories: regulations that are intended to protect consumers and those that are designed to promote fair competition. Although most business owners have an idea of what business law is, many do not know exactly how it impacts their business operations or the fundamental concepts behind business law.
Business law can be defined as a system of rules that are created and enforced through the government’s ability to regulate trade. Business law encompasses both international and domestic trade. The purpose of business law is to create a safe and fair environment for consumers while also providing a level playing field for every type of business. Whether you are a sole proprietor or run a multi-national corporation, business law will play an important role in your business operations.
Some of the key principles of business law are:
Contract laws: As a business owner, it is likely that you will enter into various contracts for any number of reasons , such as securing financing or obtaining a lease for commercial space or equipment. Contract laws are designed to protect individuals from being unfairly treated and giving them the ability to sue for damages or seek compensation.
Business torts: Any instance where one business interferes with another business’s relationships or property, it can result in a business tort lawsuit.
Intellectual property: Intellectual property refers to the creations made by businesses and individuals. This can include anything from names to logos and inventions. Each type of protection that is available for IP assets has its own set of laws and protections. For example, patents specifically protect inventions and designs. The intent behind intellectual property laws is to encourage creativity by making sure that a person can profit from the creativity that the law protected.
Agency: Agency laws are in place to regulate how an agent can act on behalf of a principal. An agent is essentially someone who is allowed by the principal to enter into various contracts for the benefit of the principal.
There is much to learn, even if you have a basic understanding of business law. Before starting a business or developing a new product, you should talk to your legal counsel to make sure you fully understand the intricacies of business law.
Regulatory Agencies and Their Role
The landscape of business regulation is dotted with government agencies and regulatory bodies, each with a vital role to ensure the lawful, safe, and fair operation of many industries. For businesses and government contractors, an understanding of how these regulatory agents operate can save time, money, and legal trouble.
The United States Government Accounting Office is an independent, non-partisan agency that monitors the finances, spending and revenue of the United States government. The GAO does not serve as an enforcement agency directly, but rather serves to review and produce reports regarding the management and economics of government spending. By itself, the GAO does not hold any regulatory power.
The Federal Trade Commission is a government agency tasked with monitoring and regulating competition-based economic policies. Government contractors often find themselves under the microscope of the FTC in relation to matters such as data security and information practices. Building on these matters, the FTC also weighs in on issues related to data security and advertising.
The Federal Communications Commission is an independent United States government agency responsible for overseeing communications and the use of the airwaves, including wireless communications and cable television broadcast. Although the FCC does not directly enforce laws or regulations, entities that fall under their authority (many telecommunications companies and some government contractors) must comply with the rates, rules and regulations overseen by the agency.
The Food and Drug Administration is the United States government agency that oversees regulations involving food, dietary supplements, drugs, vaccines, cosmetics, medical devices and veterinary products. Not surprisingly, the FDA plays an active role in trying to protect the safety of consumers of food and over-the-counter medications. Government contractors in this industry should be familiar with the many regulations that apply.
The Department of Labor is charged with overseeing regulations related to workplace standards, financial records, employee standards, labor relations and workplace safety. To ensure compliance, the DOL has several office divisions that monitor and enforce various regulations such as the Occupational Safety & Health Administration (OSHA). For government contractors, there is also the Office of Federal Contract Compliance Programs (OFCCP), which actively monitors, investigates, and enforces regulations related to the civil rights of employees and potential employees.
The Securities and Exchange Commission is the government body responsible monitoring issues related to public corporations and corporate bonds. Evolving market conditions have resulted in more private enterprises now seeking to list on the public market, and as a result, the SEC has expanded the scope of its rules and regulations. The SEC also monitors shared client information for security and privacy purposes, thus affecting government contractors.
The National Labor Relations Board is the division of the DOL tasked with overseeing regulation and enforcement of labor laws in relation to unions. The NLRB enforces the rules and regulations governing the establishment, creation, organization, operation and termination of a union. This agency also regulates labor relations between unions and employees.
The Federal Acquisition Regulation is another key resource for government contractors. The FAR is a collection of federal statutes and rules governing the process of government procurement and contracting. Most government contractors are required to comply with the federal procurement code, mechanisms and regulations.
How Business is Impacted by Regulations
The day-to-day operations of a business are intimately linked with the spectrum of laws and regulations that govern how that business operates. Changes in regulations, either at the national or local level, can have immediate effects, sometimes positive, often negative. The scope and implementation timelines for changes in regulations can vary widely. One risk of new regulations is that the business will not have time to make the necessary adjustments to its operations to comply. An example of this is the new rules imposed by the Affordable Care Act. These rules are so stringent and extensive that many companies are struggling to find the human and financial resources to comply with them. Longer term changes are easier to manage, but can result in substantial costs over time as the business must make adjustments to a broad variety of operations to remain in compliance. For any business, staying current with the rules is a constant challenge.
Of course business regulations can also be highly beneficial. Taxes provide revenue for governments to operate and various tax credits are available to encourage certain activities, such as buying energy efficient appliances or reducing carbon footprints. Tax breaks and other government incentives can also be highly advantageous in helping to launch new products, by directly subsidizing the development of new technologies or by funding studies to prove the development was feasible. While these incentives do provide a benefit to the developing business, the business must also navigate the complexities in applying for and obtaining these incentives. Even after adopting a new technology, other regulations may play a role in determining which businesses succeed and which fail. For example, rigorous environmental regulations may block a less ecologically friendly business from succeeding, while a new energy technology is not getting traction because of another regulations.
Compliance Essentials for Companies
Compliance is a priority for every business, large or small, in this era of increased enforcement by domestic and foreign agencies and regulators. A business that does not prioritize compliance puts itself at risk of enforcement and liability due to actions of its officers, employees, and agents. Compliance failures can result in civil liability (i.e., fines and penalties) and/or criminal liability (i.e., jail time for directors or officers). Penalties may also include refunds or returns of company profits and forfeiture of assets.
Businesses can protect themselves against enforcement action by taking proactive steps to ensure compliance with domestic and foreign laws and regulations. Here are eight effective compliance strategies that businesses can implement:
The Importance of Counsel
Expert legal counsel is imperative for any business, big or small. Even small businesses that believe they do not have specific legal concerns can benefit from legal advice. More often than not, legal counsel will identify potential legal issues and advise on best practices that the business might not otherwise consider. Business owners might not be aware, for example, that an ordinary business decision, such as moving their headquarters out of state or buying a new office copier, could trigger a cluster of regulatory requirements they must comply with to avoid serious liability .
A good business lawyer will be forward thinking. A business lawyer should be seen as an asset to the business, not simply a necessary evil. As a business grows, it will inevitably encounter issues that require legal intervention. The ability to properly respond to these issues, and to do so in a way that protects the interests of the business, is key to a successful company. An ounce of prevention by retaining legal counsel and forming relationships is worth a pound of cure when it comes to protecting your business.
International Business Law Considerations
Business law and regulation not only vary by country but they also vary within countries. Jurisdictions within a country often have the power to create their own rules for business. This has never been truer than in the United States where, in addition to federal law creating rules for business activities, each of the 50 states has the power to regulate business in their respective states. Some states have laws considered more friendly to businesses, being referred to as pro-business, and other states are thought to be less friendly, being referred to as less business friendly, or anti-business.
In addition to state rules and regulations, local jurisdictions, such as counties, cities, and towns also have the power to create rules for businesses in their locales. These rules deal with a wide variety of topics, including licensing requirements, zoning, sales tax collection, and more.
Regulatory agencies in every country with a modern economy enforce the laws related to business. The United States, for instance, has many regulatory agencies with various areas of responsibility, including the following:
Other countries throughout the world have similar agencies. The names, specifically, of the agencies and the particular areas they cover vary from country to country, but all modern economies have governmental agencies enforcing the laws and regulations concerning businesses within their borders.
When doing business internationally, businesses need to be aware of the issues involving international laws. International law includes many different sources of law. They include treaties, agreements among nations, customs among nations, and even some common local laws in multiple countries. International law matters are governed by supranational law, multilateral treaties, and bilateral treaties.
Enforcement of international law can be quite varied. If an individual feels that a company in which he or she has an interest has failed to follow international law, there are various places that individual may be able to seek enforcement. The following are examples:
An area of international law that is becoming increasingly relevant to many businesses is import and export controls. The United States has enacted trade restrictions against some countries which restrict the ability to do business with certain countries. Examples of such restrictions include:
These restrictions are enforced by the United States Department of Commerce. Several other countries have similar restrictions against which businesses must be aware. Failure to comply with these restrictions poses serious risk to companies. It is not only possible to face fines and sanctions as a result of failing to comply with restrictions, but also to face jail time.
Looking Ahead: Business Regulation Trends
Future trends in business regulation include an increase in digital transformation initiatives, the need for better data privacy safeguards, and changes in environmental regulations.
Digital Transformation
Digital transformation is leading to a shift in the way businesses operate, which requires changes to the law. Governments are not always able to keep pace with the rapid growth of technology, and that creates a regulatory gap for companies that are required to follow the law. Changes should occur when businesses evolve to balance their growth with one’s responsibility:
– "When a company changes in a fundamental way, whether it is to shift from brick and mortar sales to online or to apply new technology, it is often necessary to change the law to reflect a new marketplace," Schneider says. "Without this change, the law can leave a gap between what is legal and what is responsible."
Data Privacy
Another emerging trend is the focus on data privacy and the legal obligation of companies to protect the information it collects. Recently , new California Consumer Privacy Act (CCPA) went into effect, and the majority of businesses will need to make changes to their privacy policies by July 2020. To comply with the law, affected companies will need to disclose information about the types of personal information collected, how the information is used, what is done with the information, and detail how consumers can request that their information be deleted, among other obligations.
Environmental Regulations
Emerging environmental regulations are also likely to impact the way businesses operate in the future. For instance, Schneider predicts that petrochemical manufacturing is "breaking new ground," and "cities are now saying petrochemical refineries are a hazard."
Based on these predicted trends, you can see that the law is not static. Companies will need to adapt to the changing environment, which might include changes to its products or services to comply with the law and to mitigate liability.