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By Jessica Elliott Updated on October 20, 2021

What Is Business Law? What Business Owners Need to Know

Business law provides guidelines for how you run your business. While it’s important to invest in a lawyer for big issues, every day you’ll come across situations involving rules and regulations. Protect your company by learning the basics of business and commercial law.

What Is Commercial Law?

Commercial law applies to any person or business that sells products or services. Other terms for commercial law include business law, mercantile law or trade law. But, some parts of commercial law also include financial regulations.

According to the Encyclopedia Britannica, the business law definition is “the body of rules, whether by convention, agreement, or national or international legislation, governing the dealings between persons in commercial matters.”

The essentials of business law include civil codes that define rights and expectations. Business laws cover almost all aspects of your company. Understanding the basics helps you make better choices to protect your company and customers. Examples of business law include:

  • Workplace health and safety rules, including which workplace posters you need to display
  • Contract laws that help solve disputes between you and clients or business partners
  • Licensing and permit laws that set requirements for filing and paperwork
  • Tax laws affecting your business, including those governing sales and income tax
  • Hiring rules that guide how you bring on new employees and what forms you need to file

All laws hold people accountable for their actions — or inaction. Knowing the essentials of business law helps your company operate lawfully; plus, it helps you avoid expensive legal battles.

Types of Business Law

Even if you’ve never dipped your toes into law before, there’s a good chance that you’re already using these business laws in everyday dealings. Many laws stem from federal government regulations; however, each state also provides guidelines that businesses must follow.

For instance, all states use a version of the Uniform Commercial Code (UCC). You might be subject to laws in all states that you do business in, so it’s vital to review the UCC. The bottom line is that business and law go hand-in-hand. So, if you own a company, these are the main rules to know.

Contract Law

Contract law determines what makes a contract valid and enforceable. It also lists the remedies you have if there’s a breach in the agreement. You enter into contracts with workers, clients, business partners and consultants. Selling goods or services also represents a type of agreement. So, contract law covers warranty disputes.

A few contract business law definitions include:

  • Offer: A promise you or another party makes in exchange for a product or service or other particular action
  • Consideration: The payment exchanged in return for the offer
  • Acceptance: The offeree’s expressed agreement to the offer
  • Mutuality: Both sides agree to the format and terms of the contract
  • Provisions or Terms: The contract details of who, what, when and how much
  • Breach of Contract: When a party breaks the terms of the agreement
  • Remedies: Solutions for a violation of contracts such as payment or specific actions

A man uses a pen to point to a paragraph in a document he's showing to another person.

Employment Law

State and federal rules protect workers’ rights. Following these laws keeps your company in good legal standing and could protect you from lawsuits over employee termination. First, you must determine if you’re hiring an employee or a contract worker. Then, review and understand the labor and employment laws that affect your company.

Fair Labor Standards Act

You must adhere to wage and labor rules. According to the U.S. Department of Labor, the Fair Labor Standards Act (FLSA) sets guidelines for the following:

  • Minimum wage
  • Overtime pay
  • Employee record-keeping
  • Youth employment standards

The FLSA covers many more rules, such as provisions for break times for nursing mothers.

Equal Employment Laws

The U.S. Equal Employment Opportunity Commission (EEOC) enforces various equal employment laws. These rules protect workers from discrimination based on religion, national origin, sex, race, disabilities or color. Business laws covered by the EEOC include:

  • Title VII of the Civil Rights Act of 1964. A person can’t be discriminated against based on their race, color, sex, religion or national origin. Applies to all employers with 15 or more employees.
  • Age Discrimination Employment Act of 1967 (ADEA). Employers can’t discriminate against workers aged 40 or older based on their age. Applies to employers with 20 or more workers.
  • Americans with Disabilities Act of 1990 (ADA). It’s illegal to discriminate against an otherwise qualified worker based on their disability. Applies to companies with 15 or more employees.

Many other rules exist. The Equal Pay Act of 1963 (EPA) ensures equal payment for men and women. The Genetic Information Nondiscrimination Act of 2008 means you can’t use medical data in hiring.

Family Medical Leave Act

The U.S. Department of Labor Wage and Hour Division oversees the Family and Medical Leave Act of 1993 (FMLA). This business law pertains to employers with at least 50 workers. It provides job-protected leave for workers with a severe medical condition or for workers who are caregivers.

Other Labor and Employment Business Laws

Employment laws also cover a variety of situations related to staffing. For instance, the Fair Credit Reporting Act (FCRA) affects background and business credit checks. State and federal laws, such as California’s paid sick leave law, also impact your company.

Workplace Health and Safety Law

All companies must abide by rules meant to protect the health and safety of your staff. The U.S. Department of Labor Occupational Safety and Health Administration (OSHA) oversees the Occupational Safety and Health Act (OSH).

Several standard guidelines apply to workplaces, along with many that are industry-specific. OSHA regulations explain your reporting requirements and list what workplace posters you need to display.

Your local health department and fire department also provide rules for your business. Talk to your local government officials to find out how to keep your company in good standing.

A document titled "Health and Safety Procedures" is clipped together and placed on a desk.

Business Tax Laws

Any business faces federal, state and local tax requirements. The Internal Revenue Service (IRS) issues guidance on tax laws. Five types of business taxes include:

  1. Income Tax: Your income tax requirements depend on your business structure. This is a pay-as-you-earn tax, so you may choose to withhold income tax from payments
  2. Estimated Taxes: Companies must pay quarterly tax payment. Your accountant may provide tax payment vouchers. Or you can pay online through the Electronic Federal Tax Payment System (EFTPS)
  3. Self-Employment Tax: If you work for yourself, then you’ll pay the employer part of your self-employment taxes
  4. Employment Taxes: You’ll pay Social Security, Medicare, federal income tax withholding and federal unemployment (FUTA) tax on most employees
  5. Excise Tax: These taxes apply to specific industries including transportation, communication and lotteries. Taxes can also apply when making purchases

Avoid payroll mistakes by reviewing essential business laws. You may also have state and local filing requirements. A certified public accountant can help you understand the filing rules that pertain to your company.

Examples of Business Law

Business and commercial law also guide your company’s formation and licensing. These details cover annual filing requirements, how to incorporate and how to close your business. Other examples of business law include:

  • Intellectual property law sets rules for invention patents and creative copyrights. Through the use of separation agreements, it also provides ways to protect your business when an employee leaves.
  • Corporate law details regulations for running a corporation, including rules for hiring directors or raising capital.
  • The Federal Trade Commission (FTC) Act guides truth-in-advertising standards and other factors affecting sales and marketing

Following the rules helps you avoid problems with the government. Moreover, ethical practices promote transparency and enable you to gain the trust of workers, partners and customers. By learning the essentials of business law, you’ll be well-equipped to tackle everyday situations.

Jessica is a business-to-business content strategist and consultant with 24 years of experience in the restaurant and hospitality industry. She writes about technology, marketing and finance.
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