Law in Business
| Author | Carson Varner |
| Pages | 452-456 |
Page 452
Law governs and regulates virtually all aspects of the business process, from the right to engage in a business or trade, to the legal form of a business, to agreements for buying and selling merchandise or rendering services. Law regulates the quality of products sold and the advertising of products for sale. Law governs the employment relationship, protects business property, and taxes business income. This article explores the relationship of business and law in several of these areas.
Business in the United States is regulated by federal and state laws as well as by local ordinances. State law regulating forms of business, business agreements, and some taxes is the most important. Federal law regulates such things as advertising, civil rights, and protection of such property as inventions. Local law typically regulates business hours, where one can do business (zoning), and health and safety.
Page 453
To qualify as a lawyer, a person must usually earn both a college degree and a three-year law degree and then pass a rigorous examination (the bar exam). Lawyers are normally certified in one or possibly two states. Thus lawyers certified in Massachusetts would not be qualified to answer a question about law in Texas or even a question about local law in a distant city within their own state. The rules and ethics of law practice are governed by the supreme court of each state.
Most lawyers do not have degrees in business. Their expertise is law, not business. All businesses need lawyers from time to time, but it is important for the businessperson to know as much as possible about the law to better weigh the legal advice and the needs of business.
There are three basic legal forms of business: proprietorship, partnership, and corporation.
Many businesses begin with an idea worked out at the kitchen table, in a garage workshop, or today, on the computer. There are no legal impediments to or requirements for starting most businesses. One needs only an idea, perhaps inventory, and customers. When one simply starts a business with nothing more, it is called a sole proprietorship. For some business, licenses are necessary. Plumbers, beauticians, and, of course, lawyers and physicians must be licensed by the state. Carpenters, psychologists, tax advisers, and bookkeepers, while they often have professional qualifications, do not need to be legally certified or licensed.
The sole proprietor is responsible for all the debts of the business and in turn receives, after taxes, all of the profits. The sole proprietor may hire employees. A sole proprietorship tends to have no more than up to twelve to fifteen employees. If the number of employees increases beyond this, the business normally evolves into another form.
The Uniform Partnership Act, recognized by more than forty states, states that "a partnership is an association of two or more persons to carry on as coowners a business for profit" (UPA 6[11]). A number of factors differentiate this form of business from a sole proprietorship. More than one person is involved, and they are co-owners of the business. A partnership, like a sole proprietorship, may employ workers who are not owners.
Business may be defined as "every trade, occupation, or profession." A partnership may be made up of members of any occupation. The goal of the partnership is profit; therefore, an organization of persons whose purpose is to encourage recycling or advocate a political cause is not a partnership.
A partnership can be created very easily. If Sam and Mike are mechanics and put on a sign "Sam and Mike's Garage—Open for Business," they have formed a partnership under the law. Any income or losses are split half and half in the absence of an agreement that says otherwise. Normally a partnership is created by written document with the help of a lawyer. Suppose Jill and Joan wanted to start a sporting-goods store. Suppose Jill could work only half time but could contribute $50,000 to start the business, while Joan had no money but knew the business and could work full time. With the help of a lawyer, they might agree as follows: The business would operate month to month. If there was income, Joan would draw the first $1,500 as salary. Then Jill would draw $750 as salary. Additional income would pay Jill 6 percent per year on the $50,000 she contributed. Finally, any additional income, if available, would be split evenly between the partners.
If Sam and Mike call their business "Quality Mechanics" or Jill and...
To continue reading
Request your trial