Whether you’re an entrepreneur starting a business, or a business owner who’s expanding, selling, or otherwise operating an existing one, it’s important to have a general understanding of the laws and regulations governing business within your state. These bodies of laws and regulations are loosely referred to as business law.
These laws are important because failure to honor them may have dire consequences such as government penalties, legal action from other parties, and ultimately, substantial financial loss. Many of these laws are fairly complex and require a lot of time and effort to ensure compliance which is why major businesses have legal departments and even smaller businesses often hire lawyers who specialize in this area of law.
This article discusses the basics of business law in the State of Michigan. The article also touches base on commercial law which is an overlapping area involving business transactions.
What is Business Law?
Business law is an umbrella term that covers all different types of laws related to how to start, purchase, run or close a business. These laws establish the rules a business must follow. A competent business person should be familiar with them, and know when it is wise to seek the advice of an attorney specializing in business law. Business laws exist at both the state and federal levels, which also includes administrative regulations. Throughout this article, we’ll discuss the various individual subcategories and main areas of business law.
What is Commercial Law?
Commercial law encompasses the legal side involved with commerce, trade, and sales. In other words, this area of law regulates commercial and business transactions. For example, if you were selling your business or a significant number of business assets, you’d likely want to speak with an attorney who understands commercial law within your state.
Business and Commercial Licensing
When starting and running a commercial business, there are a multitude of various business licenses and compliance requirements for owners and operators. These usually come from both the state and federal government, sometimes with overlapping guidelines and requirements. While each state will vary in their licensing requirements, federal requirements are consistent regardless of the business location within the country.
Federal licensing is entirely dependent on the type of business being conducted. For example, if the business is engaged in the sale of alcohol, they will need to obtain permits from the Alcohol and Tobacco Tax and Trade Bureau. Another example might be if the business deals in agriculture or agricultural products that cross state boundaries, you would need permits from the US Department of Agriculture.
Starting a Business
The largest area of business law relates to starting a business. Which laws are applicable will depend on which type of business organizational structure you choose. For example, you can start your business as a partnership, sole proprietorship, corporation, limited partnership or limited liability company. Generally speaking, state laws are applicable to the business type and federal laws are applicable to income taxes.
Once you pick the type of business you would like to start, you will want to choose a name. You will need to research your desired name to make sure there isn’t another business out there of the same name – which would be a trademark question. Trademarks, patents and copyrights are part of intellectual property law, most of which is at the federal level. In addition to selecting your business name, you will need to find out if your business requires any special licenses or permits. Most of these will be at the state and local level, however some apply at the federal level depending on the type of business.
Purchasing a Business
Another major area of business law is the purchasing of an existing business. When purchasing a business, there are several things that must be looked at initially. One of these is whether or not you are purchasing the real estate on which the business is physically located, which is a question of real estate law. In addition to the question of real estate, you will need to know whether or not you will actually own any equipment used in the business, which is a question of property law.
Finally, you will want to know whether or not you are the actual boss of any employees of the business, which is a question of employment law. Contract law will also come into play if you are looking to hire new employees and order supplies. Contracts are legally binding and when one party does not hold up their end of the contract, it is referred to as a breach of contract.
The legal aspects involved in with the purchase or sale of a business is a broader area of law known as mergers and acquisitions.
Running a Business
When running a business, a business owner is held to many different laws dictating business management and operations. Most of these laws are regulated by government agencies and cover things such as required employee benefits, anti-discrimination laws and taxes. Additionally, if a business is engaged in the sale of physical items, they are required to follow the Uniform Commercial Code (UCC) which governs sales and commercial paper.
When a business is struggling to get paid for their products or services, debt collection laws apply – which are primarily at the federal level. For situations where a customer accuses a business of wrongdoing, there is an extensive area of business law known as tort law which is usually at the state level. A common example of tort claim would be a product liability case.
Closing a Business
Unfortunately there are times when a business is not doing well and the best option is to shut it down. There are many questions that come up during this process regarding things such as how to inform customers, whether cancelation of licenses is required, and whether taxes and debts still need to be paid. In most cases these questions are covered by state law.
Often the question of bankruptcy comes up, which is an important area of business law that is covered at the federal level. Bankruptcy in this situation is when a court determines that a business cannot repay its debts. Businesses will file either Chapter 7 or Chapter 11 bankruptcy, which can be a complex process. During this process, a court will determine the repayment and/or potential discharge of debts.