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Introduction to Business Law

Statutory Law

Federal Legislation and Business Decisions

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.

U.S. Federal Legislation

U.S. federal legislation is created when a bill becomes a law, which is then codified as a statute in the U.S. Code. Agencies then create regulations to implement the statutes.
Statutes are one of the primary sources of law, governing the civil and criminal interaction of individuals, businesses, and governments. Congress makes federal statutes. The process starts with the proposal of a bill in Congress. Committees and subcommittees within each house of Congress review the bill and then vote on it. The bill needs to pass a vote of both houses of Congress before it goes to the president. If the president signs the bill, it becomes law—a federal statute. However, the president may veto the bill. Then Congress needs to get enough votes (two-thirds of each house) to override the veto and make the bill into law. Otherwise, the bill does not become law.

How a Bill Becomes a Law

U.S. laws are created through the proposal of a bill, which is then considered by both houses of Congress, passed by them, and ultimately signed by the president.
Some of the statutory laws that affect corporate decision-making are the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Sarbanes-Oxley Act (SOX). RICO sets penalties for crimes such as racketeering—a type of organized, ongoing corrupt business practice. An example of such a practice would be the bribing of a local building inspector to achieve building approvals. If done as a course of practice, this could be a cause of action under RICO. Sarbanes-Oxley governs corporate compliance and increased penalties for fraudulent financial activities. Businesses must comply with these laws. Many large corporations have compliance departments, either as a part of or separate from their legal department. Small businesses have fewer resources but must still be careful about compliance.

State Statutes and Business Decisions

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.

In most states, lawmakers propose a bill within the state legislature. All state legislatures except for Nebraska's are bicameral—in other words, they each have two chambers. Legislators vote on the proposed bill, and if it passes, it goes to the governor to sign into law or veto. State legislatures typically have provisions to override a gubernatorial veto. Similarly, state courts have the right to declare a law unconstitutional under the state constitution, the U.S. Constitution, or both. If a federal statute is passed by Congress and signed into law by the president, an action challenging the constitutionality of the statute may be heard by the federal courts, and the courts could decide the law's constitutionality.

The 10th Amendment of the U.S. Constitution reserves to the states any powers not given to the federal government. Many state laws may affect businesses. For example, state tax codes dictate the state taxes a business must pay, and the Uniform Commercial Code is a set of laws governing sales within the state. In addition, states often pass labor laws that dictate how employees must be treated and what rights they have. Most states also have consumer protection laws. Other areas of state law include negligence laws, estate laws, criminal codes, traffic rules, zoning laws, family law statutes, and real estate laws.

Businesses must comply with federal legislation and state legislation. Complying with one does not automatically mean that a business is in compliance with the other. The doctrine of preemption requires that state law be at least as strict as federal law on the same topic. If it is not, then the state law is typically preempted by the federal law.