Business law focuses on the U.S. court system and laws (both federal and state) and the pivotal role they play in shaping both national and international commerce. Laws affect individuals, businesses, and governmental entities. To understand the basics of the American judicial system and how its many parts interact with business, the theories of jurisprudence, the role of law, and various sources of law such as statutory law and common law need to be explored. Important components of business law include torts, contracts, intellectual property, employment law, and ethics.
At A Glance
- The purposes of law are to maintain order, influence conduct, honor expectations, promote equality, and offer compromises. Laws regulate activities by imposing duties and responsibilities prescribed by the controlling authority and have binding legal force.
- There are several functions of law, including maintaining social order and political and economic stability. There are differences between law and morals, and between law and justice.
- Business law regulates how companies operate—from small businesses to large corporate entities.
- There are many sources of law: the U.S. Constitution, federal statutes, federal regulations, international agreements and treaties, state statutes, state constitutions, state administrative regulations, and ordinances. Laws can be classified as public, private, civil, criminal, statutory, common, substantive, administrative, or procedural.
The role of federalism in American government is to distribute power between the national government, also called the federal government, and the states. Under federalism, businesses may have multiple sets of laws that might apply to them.
- International law is a body of agreements and treaties that governs relationships between parties in different countries. It covers everything from investments to sales transactions, and from manufacturing to transportation. The entities in international law may be private individuals, corporations, specialized administrative bodies, or even nations. If any aspect of a business is outside the country, international law may apply.
- Domestic law covers events that happen entirely within U.S. borders.
Federal and state constitutions may limit the activities in which a business may participate or the manner in which it conducts that business.
Each state has its own constitution, which differs from the federal constitution.
- The federal constitution defines the structure of the national government. It also establishes and limits the scope of the national government's powers. State constitutions tend to be longer and more detailed. They outline the state's structure of government and contain a bill of rights.
- The U.S. Congress is made up of a House of Representatives and a Senate. Both houses must pass legislation in order for it to become law. Federal statutes such as RICO and Sarbanes-Oxley can have an impact on businesses.
State legislatures make and pass state statutes. Key state law provisions that may affect businesses include state taxes, each state's Uniform Commercial Code that governs labor laws, consumer protection statutes (both state and federal), commercial law, contracts and business agreements, and many others.
The common law developed over time, based primarily on custom and judicial decisions. The common law is reactive, not proactive.