Business Development & Conflict Resolution

We assist individuals with starting their own businesses because small business is key to economic independence and community sustainability.

Basic Concepts of Business Law that Entrepreneurs Should Know!

As a small business owner, you must have a general understanding of the legal aspects of running a business.  Small businesses must ensure that they understand the legal consequences of conducting business in certain states or countries.  With the internet making it easy to do business with anyone throughout the world, it is always good to understand the local rules or regulations of doing business in different parts of the world.  An entrepreneur must understand the rules for doing business in New York are different from the rules for business in Nigeria.  A small business owner must ensure that they review and study the local rules and regulations in any country that they plan to do business in.

Here are a few things to consider before conducting business in different countries around the world:

  • Have a general understanding of the rules and regulations of doing business in that particular country.
  • Ensure that you have the proper licenses and paperwork needed to conduct business in the country.
  • It is good to hire a local business attorney in that particular country, to ensure that you are not violating any laws or committing any illegal activities.
  • It is always good to have a business contact in the country you plan to do business in. That individual will be the representative that customers can contact if they have any issues or problems.
  • The business contact will also ensure that the company is up to date with the country’s business rules, ensure that all business practices are legitimate, and ensures that all business fees (like license renewal fees and business taxes) are being paid on time.

As an entrepreneur, you do not have to have a Master’s in Business, but it is advisable to take some business courses.  This will ensure that you, as a small business owner, has some knowledge of what it takes to run a successful business.  The wonderful part about going into in business in the 21st Century is that one is able to take business classes online in the comfort of their own home.  Also, there are many organizations out there who will assist individuals with starting their own businesses.  So, for all new entrepreneurs, it is advisable to get the necessary training needed to have a successful business.  By taking courses that are geared towards your business industry, you will ensure that you are able to stay in business for a longtime.  Also, you will ensure that the business is able to stay open and will not have to close due to lack of knowledge.  Anyone can become a small business owner, but to survive as an entrepreneur you must have some form of training.

The most important aspect of being a successful business owner is that one must have a general understanding of business law.  You have to understand the basic concepts of business law to even start a business.

Here are eight basic concepts of business law that any entrepreneur should understand:

  • Basic Concept #1: What is intellectual property? Intellectual property is any idea that one comes up with to develop products and services that will be offered to customers for sell and will generate income for the individual.  Intellectual property includes business ideas, products, services, inventions, trade names, and trademarks.  Businesses must ensure that they do everything to protect their intellectual property from being stolen or infringed upon by third parties.  The best way that an entrepreneur can protect their intellectual property is by filing requests for patents, copyrights, or trademark with their local government to protect their intellectual property.                                                                                            
  • Basic Concept #2: What does business agreements or contracts require? The main function of a contract is that it is a set of promises or a single promise that is enforceable by law.  The two components of any agreement is offer and acceptance.  The offer is the first step in the contract process because it is the terms lined out in the agreement.  The person who makes the offer is called the offeror and the person the offer is made to is called the offeree.    

Here are three requirements to determine if something is an offer or not:     

  1. Requirement #1: There must some current intent to contract on the part of the offeror that is shown by an objective indication.
  2. Requirement #2: The alleged offer terms must be definite and specific.
  3. Requirement #3: The alleged offer must be communicated to the offeree in some form or fashion.

The second component of the agreement is the acceptance.  An acceptance is a “manifestation of assent to the terms of the offer made by the offeree in the manner invited or required by the offer.”  Source Restatement (Second) of Contracts §50(1) (1981). 

Here are three factors that the court will consider to determine if the offeree has accepted the offer, and formed a contract:

  1. Factor #1: Whether the offeree wanted to enter into a contract with the offeror.
  2. Factor #2: Whether the terms proposed by the offeror were accepted by the offeree.
  3. Factor #3: Whether the offeree let the offeror know that they accept the terms.

The most important aspect of the acceptance component is that the offeree must intend to do business with the offeror.  There are many ways that one can agree to the terms of an agreement or contract.

Here are a few ways to accept the terms of an agreement or contract:

  1. Can accept the terms verbally or by way of verbal agreement and handshake.
  2. Can accept the terms by way of sending notice in the mail (mailbox rule).
  3. Acceptance by shipment.

The key to an agreement or contract is that there must be an offer and acceptance of the terms of that offer.

  • Basic Concept #3: What is product liability? Product liability is when a business is sued by a customer for a defective product that caused loss or harm to the customer.    

There are several theories regarding recovery under product liability that are listed below:

  1. Contract theories deal with product warranty which deals with the promises of the nature of the product sold to customers. In such civil warranty cases, the plaintiff’s claim is that the product did not live up to the promises of the seller.  Normally, the defendant is accused of being negligent regarding the product.  The product warranties are: Express Warranty; Implied Warranty of Merchantability; and Implied Warranty of Fitness.
  2. Tort theories deal with the plaintiff claiming that the defendant was negligent therefore causing either bodily harm, emotional harm, or monetary loss to the plaintiff. The product that was sold to the plaintiff caused them to suffer sever bodily injury or damage including extensive monetary loss.  The tort liabilities that can used are: negligence; strict liability; and acts committed under Restatement (Third) of Torts.

There are statutes of limitations rules setup that state when an individual can file a lawsuit claiming product liability.  Normally, an individual has to file their lawsuit within a period of four years, ten years, or twelve years depending on their product liability claims.

  • Basic Concept #4: What are negotiable instruments? Negotiable instruments are also known as commercial paper and is a substitute form of payment besides actual money. Commercial paper is the use of payment of money as a contract form. Negotiable instruments are basically orders to agree to pay money and promises that you will pay a certain amount of money for a transaction. Negotiable instruments are a form of payment that can pass easily through any financial institution.  Negotiable instruments and commercial paper can be accepted forms of payment in the place of real money.  

Here are the different types of negotiable instruments or commercial paper:

  1. Promissory Note: This is a promise to pay money. This negotiable instrument is considered a two-party instrument where one party (who is the maker) makes an unconditional promise that is written to another party that they will pay them for products or services rendered.  The party who will paid is called the payee.
  2. Certificates of Deposit: This a note that is given to a customer by the bank to show that the customer has deposited money into the bank. The certificate of deposit is an instrument with two components: 1. Bank acknowledgment that the customer has deposited money and 2. The bank promising the customer that they will repay the sum of money deposited into the bank.
  3. Drafts: This type of commercial paper is an order to pay money and not a promise to pay money. The check is the most common form of drafts.  There are three parties involved with a draft: 1. The drawer is the person who orders a person to pay a certain amount of money to a third party.  The drawee is the person who is ordered to make the payment to the third party. 3. The payee is the third party who receives the payment.
  4. Checks: This type of draft is drawn on a back account and is payable on demand. Checks are the most popular form of negotiable instruments used to purchase items and pay for things.
  • Basic Concept #5: What are sales contracts? Sales contracts normally involve the sale of goods which involves ownership of tangible personal property being transferred in lieu of money, services, or other goods.   

Here are the essential terms for any sales contract:

  1. The price terms must be spelled out and the terms of the price do not have to be a fixed price.
  2. The quantity terms have to spell out how many products will be purchased by the buyer and how much the seller will charge for the products (cost of the products).
  3. The contract should state how the terms of the contract will performed and the time limit for performing the terms. If there are no terms stated regarding performance time, it will be implied that everything will be performed within a reasonable time period.
  4. The contract should state how the products will be delivered to the customer.
  • Basic Concept #6: Are partners, of the small business, legally liable? When it comes to a Limited Liability Partnership (LLP), normally the primary partner will be held personally liable for business debts of the partnership.  But, the limited partners will not be held personally liable for the business debts of the LLP.  The limited liability partners will only be liable for the portion they have invested in the business.  But, all partners of the business will held accountable for any business transactions made by one partner.  The limited liability partners may be held liable for their own wrongful or tortious acts that may have resulted in them being sued for malpractice.    

In a Partnership, all partners assume personal liability for all the business obligations, business debts, and legal obligations of the business.  Each partner in the business will be held personally liable for the wrongful acts, tortious acts, and business debts of the other partners.  If the business assets are unable to pay off a particular debt, the creditor may hold all the partners personally liable for the remaining portion of the debt owed.

With a Limited Partnership (LP), it is similar to a Limited Liability Partnership, when it comes to liability issues.  The general partners will generally be held liable for all transactions and debts of the business.  The limited partners will not be held accountable for business transactions or business debts.  The limited partners will be protected against liability after they have paid their share of capital contributions to the business.

A Limited Liability Limited Partnership (LLLP) is a business where all partners have elected personal liability protection for all the partners.  The general partner of the LLLP will be held liable for any business transactions that have been done in an illegal manner by them.  But, the LLLP partners can be held liable for any business transactions that have been done by a partner in an illegal manner.

  • Basic Concept #7: What are the rights, obligations, and liabilities of shareholders in a corporation? Shareholders do not play a role in the daily operation of the corporation.  Shareholders are not liable for the actions of the corporation, even if, it is an action that caused injury or harm to an individual.  The shareholders of a corporation are not personally liable for the debts of the corporation.  The corporation is a separate entity from the shareholders, officers, and directors.  The shareholders only report the dividends they received from the corporations within the year on their personal taxes.  Also, the shareholders cannot report any of the corporate losses on their personal taxes.  But, the shareholders are able to report any losses from investments in the corporation on their taxes.

 A shareholder can be held personally liable for corporate debts if they received any corporation distributions or dividends in an illegal manner that they had knowledge of.  A shareholder can be held personally liable for corporate debts in the following ways: 1. Incorporating the business in defective way; 2. In some states, shareholders will held personally liable for any wages that are owed to employees of the company; and 3. Committing acts that “pierce the corporate veil”.  “Piercing the corporate veil” requires two things to occur: 1. The corporation has to be dominated by the shareholders; and 2. The shareholders use their domination status for illegal purposes.

  •  Basic Concept #8: How to properly resolve legal disputes involving your company? Many states are starting to require companies to resolve legal disputes using alternative dispute resolution before any lawsuit can be filed in court.  Alternative Dispute Resolution (ADR) is the technique where individuals resolve legal disputes in a safe and an amicable way.

 Here are a few reasons why many states are requiring parties to participate in ADR before court litigation:

  1. Legal disputes can be resolved quickly.
  2. It will cost the parties less in money, cost, time, and litigation of the dispute.
  3. The court system will not be overloaded with many cases.
  4. The parties can play a significant role in coming up with a resolution to the issue or problem.
  5. The decision makers have specialized experience and expertise to help resolve the legal dispute.

Here are some of the common forms of Alternative Dispute Resolution:

1. Settlement: Many judicial branches throughout the world are now requiring companies involved in lawsuits to participate in pre-trial conferences and settlement conferences. The pre-trial conference is where the parties will settle on the witnesses to testify at court, the number of exhibits each side will provide, the time length for the trial, resolve any preliminary issues that may come up, and see if the case can be resolved.

The settlement conference is usually done mid-way during the trial or about two or three weeks before the trial.  At this conference, both sides will determine if any issues have been resolved and go over the procedures of the court case.  Also, at the settlement conference the parties try to come up with resolutions to the major issues in the case.  Sometimes at this conference parties are able to resolve the entire case to avoid trial. And sometimes the parties can resolve some issues that will help with shortening of the time for the actual trial.

If a decision is agreed upon at the pre-trial conference or the settlement conference, that agreement is binding once it has been approved and signed by all parties in the case and the judge.

2. Arbitration: Many companies are starting to include arbitration clauses in their contracts which require individuals to try arbitration before filing a legal claim in court. Arbitration usually involves the parties agreeing to allow a neutral third party to assist in resolving the dispute.  The non-judicial and neutral third party is known as the arbitrator and the arbitrator will issue a decision that is binding on the parties and helps to resolve the legal dispute.

The setting for arbitration is not as formal as a court proceeding.  The arbitrator can be a lawyer or someone with expertise concerning the main topic or subject matter of the legal dispute.  Arbitrators are similar to civil trials but do not have the rigorous rules like a civil trial concerning admission of evidence and record keeping procedures.  Even though the arbitrator’s decision is binding on both parties, the decision can be overturned for the following reasons: 1. If any party committed fraud; 2. Arbitrator favored one party over another, was not impartial, or acted in a corruptive manner; and 3. If the arbitrator acted in any way that can be considered misconduct on their behalf.

3. Mediation: Mediation is similar to arbitration in that a third neutral party will assist the parties in trying to find a resolution to their legal issues. But, in mediation the resolution agreements are not binding and can only be binding if signed by a judge.  The neutral third party, in this form of ADR, is called the mediator.  Mediation is more of a way for disputing parties to learn how to communicate with each other to resolve their issues or problems.

4. Summary Trial: This type of ADR normally gives the parties to a lawsuit a good dose of reality concerning their case. The summary jury trial is considered to be a jury trial that is not public and is considered a mock trial.  If the parties cannot come to some form of agreement during the summary trial, they can still have their day in court.  But, the summary trial lets the plaintiff and defendant know the possible outcome of the case with a jury deciding it.

5. Mini-trial: A mini-trial is an abbreviated version of a trial that is informal and encourages the parties to settle the case. Normally, the parties will agree to the mini-trial and the procedures for running the trial.  With the mini-trial, both sides present their case to a panel that is made up of senior management from each company in the lawsuit.  Either a retired judge or attorney will be an advisor to proceed over the mini-trial.  The mini-trial helps to prepare the parties for the actual trial if needed.  But, all parties involved in the mini-trial are mainly there to try and settle the legal dispute.

These are just a few of the concepts of business law that an entrepreneur should have a little knowledge and understanding of.  Also, as an entrepreneur it is always important to educate yourself regarding the basic rules and regulations pertaining to running a small business in your particular country.

Donya Zimmerman is a business consultant, mediator, and legal professional with over ten years of experience.  Donya is also a public speaker and aspiring author.  She has a few books in the works that will be published and released in the latter part of 2015. The books will focus on entrepreneurship, small business, and daily devotionals.  She is owner of Family & Community Mediation and Business Consulting (FACMBC) based in Baltimore, Maryland and has been in business since 2013. Services provided by FACMBC:  Mediation and Conflict Resolution Services; Business Registration Assistance (Limited Liability Company, Corporation, S-Corp, Limited Liability Partnership, etc.); Business Plan Drafting Assistance; Business Certification Assistance (MBE, WOSB, 8A, 501(c) (3), Hub Zone, etc.); and Business Development.  She is also a contributing writer to the Maryland Daily Examiner Newspaper. Donya Zimmerman has made article contributions to the Simply Inspirational Women in Business Journal for 2014 published by Dr. Cheryl Cottle. 

If you are thinking about starting your own small business or non-profit organization do not hesitate to contact me because I can show you how to do so. Contact information: dzimmerman36@gmail.com; www.facebook.com/FACMBC; www.twitter.com/FACMBC; https://dzimmerman36.wordpress.com; www.linkedin.com/in/dzbusconsultantandmediator

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

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