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Introduction to Business Law

Sources of Law

Classifications of Law

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 U.S. court system has two separate and independent parts: federal courts and state courts. The two main sources of law are federal law and state law.

Federal law can come from the federal constitution, federal statutes, and federal regulations. State law can come from state constitutions, state statutes, state regulations, and local ordinances. A federal or state legislature creates a statute, a written law passed by a federal or state legislative body, but a government agency, such as the IRS, issues regulations and rules. The law, in addition to common law, is also made up of statutes and rules and regulations. For example, there are tax statutes that comprise the tax code. Then there are rules and regulations that serve to implement those statutes.

Congress passes federal statutes, and in most cases the president signs these. As for federal regulations, either Congress or federal agencies can make them. Regulated industries and areas must obey federal statutes and regulations.

Laws also have various classifications, such as public (laws dealing with the relationship between government and individuals regarding public interests), private (laws dealing with the interaction between individuals or businesses regarding private interests), civil (rules that regulate noncriminal matters and provide remedies), criminal (rules regulating crimes against public order), statutory (rules that govern the civil and criminal interaction of individuals, businesses, and governments), common (law decided by courts that sets forth the law in areas not governed by statute or regulation), substantive (laws that define and regulate legal rights), procedural (rules that regulate how to enforce substantive rights), and administrative (regulations created by government agencies that govern particular industries). Laws are given these different classifications so as to distinguish them into different types. By grouping them into these classifications, it becomes easier to understand the types of laws that we live under.

Public law governs the relationship of government with its citizens. Private law governs the relationships between individuals and businesses.

Criminal law is the set of rules that prohibit wrongful conduct against the state or against public order such as felonies and misdemeanors, and punishable by fines and incarceration. Crimes can be misdemeanors (minor crimes) or felonies (major crimes). The government brings criminal charges and must prove them beyond a reasonable doubt, a higher standard applied in criminal cases for which the state removes all reasonable doubt to prove a defendant's guilt. Typically, crimes are punished with fines or incarceration, depending on the type and severity of the crime. The theories for (or motives behind) criminal punishment include punitive (to punish the wrongdoer), rehabilitative (to reform the wrongdoer so that person leads a lawful and productive life), and restitutive (to provide repayment to the victim or society).

Civil law regulates noncriminal matters or civil wrongs between parties, such as simple negligence, and provides remedies, such as money damages. Individuals may file civil claims against one another. Typically, civil claims must be proven only by a preponderance of the evidence, which in civil cases is the principle that the burden of proof must be met by showing the evidence more likely than not to prove a case. Individuals who file civil suits seek remedies, money damages or other equitable relief, from those who harmed them rather than seeking incarceration. Types of civil claims include personal injury actions (such as car accidents and slips and falls), breach of contract claims, and eviction actions.

Differences between Civil and Criminal Law

Civil Law Criminal Law
Who brings the action Individuals and businesses The state or government
Remedies Usually money damages or other equitable relief Fines or incarceration
Burden of proof Preponderance of the evidence Beyond a reasonable doubt
Examples of claims Negligence, breach of contract Murder, theft, arson

The legislative, executive, and judicial branches each have powers that enable them to check, or limit, the actions of the other branches.

Substantive law creates and regulates laws that bestow a legal right. Procedural law is a set of rules that describe how to enforce substantive rights, such as life and liberty, as opposed to actually bestowing a legal right. A substantive law may grant someone the right to drive, but a procedural law may direct someone on how to actually apply for a driver's license. Procedural laws are not to be confused with procedural due process, which creates rights to a fair hearing or right to notice, for example.

Statutory law is the codified rules that govern the civil and criminal interaction of individuals, businesses, and governments. Common law refers to case law decided by courts that over time comes to define the law in areas not governed by statute or regulation.

Effects of Federalism on Businesses

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.

The U.S. Constitution establishes federalism, which means that the government operates with a federal (national) government and regional or state governments. Key to the U.S. government, federalism establishes that while the federal government can make laws, it also delegates to the states the making of laws in other areas. For these areas, people must follow the laws of the state in which they live or do business.

The Constitution establishes three branches of federal government: the legislative (Article 1), the executive (Article 2), and the judicial (Article 3). The legislative branch of the government consists of Congress, which is responsible for making laws. Congress has two houses: the Senate (two senators are elected from each state, regardless of population) and the House of Representatives (representatives are elected from each state based on population).
Congress, composed of the Senate and the House of Representatives, was created by Article 1 of the Constitution. One of its responsibilities is to regulate interstate commerce.
The executive branch, including the president, enforces the laws. The judicial branch, represented by the courts, interprets the laws. Each state has its own government, also set up with three branches: executive (a governor), legislative (a legislature), and judicial (courts).

The federal government and state governments make laws. Therefore, a business operating in State X must not only comply with the laws of State X but also with federal law. If this business also does business in State Y, it must also comply with the laws of State Y when doing business there. Every law must go through judicial review, which is the power of a court to review government enacted laws or decisions and decide whether they are constitutional.

International Law

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.

International laws can come from treaties or agreements between the United States and other nations, or they can come from the laws of other nations. According to the Constitution, the president typically signs treaties after the Senate has provided advice and consent. Some U.S. laws can affect the actions of U.S. companies abroad. In addition, foreign laws can affect U.S. companies doing business in said local jurisdiction. International law can also be made up of local laws that companies must obey when doing business abroad, or these laws can simply be ones passed by other countries in which American companies do business.

These laws can apply to import and export activities, manufacturing abroad, selling abroad, international human rights of workers, and local laws governing businesses that operate locations abroad. They can also apply to international investments, transactions, and transportation.

International laws may affect American individuals, U.S. businesses, administrative bodies, government agencies, foreign individuals, foreign businesses, and foreign governments. In addition to the strict letter of the law, U.S. companies must also be aware of local customs, habits, and practices of the countries in which they do business. Although these have no formal basis in law, companies should comply with them if they want to be accepted in a foreign country.

International law can cause barriers to entry in different industries in foreign countries. It can also affect doing business in a country and importing and exporting goods and services. International law can affect how a company does business in a foreign country through, for example, local employment laws, local tax laws, and other local regulations that may affect importing and exporting.

International Law and Domestic Business Decisions

Domestic law covers events that happen entirely within U.S. borders.

International laws can affect U.S. citizens when they travel abroad, domestic businesses that do business overseas, and the relationship between the U.S. government and other nations. Just as American businesses must be aware of federal and state laws, they must also be aware of international laws.

Failure to obey international laws can have the same effects on businesses as the failure to obey domestic laws—enforcement actions, civil lawsuits, fines, effect on brand or value, and possibly being barred or excluded from conducting business with certain foreign nations. These actions could potentially be brought either in the United States (usually if U.S. law is violated) or in a foreign country (if foreign law is violated). An example would be that failing to follow the local labor laws of a host country could result in a company being fined, being barred from doing business in that country, or suffering damage to its brand. Businesses must be aware of treaties between the United States and other countries in which they are doing business.

Aspects of business that international law can affect include employment and human resource issues, outsourcing, contracts, intellectual property, manufacturing, international transactions and financing, and foreign real estate, among others.

One significant international law in this area is the United Nations Convention on Contracts for the International Sale of Goods (CISG), which ensures predictable contracts for the international sale of goods among the countries that have ratified it. Businesses and their compliance departments, which are responsible for ensuring that all internal and external rules are followed, must thoroughly research which laws, treaties, and rules apply to their doing business abroad and how those rules affect their decision-making.