Introduction

As boring as it may seem, legislation governs quite a lot to do with business and you need to be careful to comply with relevant legislation in the jurisdiction within which you operate.

As a basic introduction, Commercial law, also known as business law is a body of law that regulates the conduct of persons, merchants and businesses who are engaged in trade, sales and commerce. Even at the inception of your business there are laws of compliance with regard to incorporation (which vary depending on what legal structure you choose), business registration and tax registration and this then leads into some of the main strands of commercial law, namely: consumer protection, employment law, contract law and intellectual property laws. Whilst you don’t need to be an expert in these areas, it pays to understand some of the basic concepts and to understand that dependent on the country and jurisdiction in which you are looking to set up in, the obligations can range from almost non-existent to very restrictive and onerous.

Business registration, tax and incorporation

One of the first steps on your journey into business would be to register the company within the jurisdiction you choose. Dependent on where this is, there may be rules around the name which you can choose and you will often need to submit a request with the related governmental body for approval. This is designed to ensure that your business name is:

1. Not directly copying the name of another business
2. Not overly similar to an existing business, or designed to confuse or mislead
3. Not offensive

Once registered, this business name can then be linked to the ownership of the company and will ensure the governmental body of the jurisdiction in which your business exists is aware of your operations.

Through this registration process you will also be given a tax identification number which enables your business to be taxed appropriately. Each jurisdiction has different approaches to corporate tax and the treatment will also depend on which business structure you select. It is therefore worth reading into in order to be aware of the basic tax rules in the jurisdiction in which you operate in order to ensure you are in compliance.

If you go down the route of incorporating your company, there will be additional legal requirements to consider and you will need to prepare and submit your articles of incorporation. The articles of incorporation essentially stipulate the set of rules that govern the company as well as providing an overview of the capital and share structure that underpins it. It is strongly recommended that you get the advice of a professional during this stage as a qualified Lawyer will be able to amend generic articles to suit the intricacies of your business and a tax accountant would be able to advise on the optimal structure for tax purposes. Further to this, should your organisation trade shares on a public stock exchange, you should also be aware of the laws governing insider trading.

Commercial Law and Consumer Protection

When operating a business, there will always be some consumer protection legislation that you will need to be aware of that will govern how your company must act in order to be fair and equitable to the customer for your product or service. Such legislation is usually devised by the governmental body overseeing the jurisdiction and can therefore vary a little, but in general the legislation usually governs the following:

• Data Protection and Privacy – Data protection and privacy is a very hot topic in today’s commercial law market with a significant amount of our lives moving online and big data becoming big business. As a result legislation has needed to catch up to regulate the usage of consumer data that is constantly being mined through consumer interaction with online services. It is now law in most countries for organisations to have a privacy policy that clearly discloses how any consumer information that is collected is used. Penalties for not complying with commercial law in the area of privacy and data protection can be significant, so depending on the nature and types of data on customers that you are looking to collect, it may be worth getting legal advice to ensure your privacy policy is sufficient to protect you.
• Consumer product safety – Should you be selling products to customers, then product safety is paramount. Commercial law here can govern areas such as electrical hazards, mechanical hazards and material usage and it really depends on the nature of the product you are producing as to which standards you will need to comply with.
• Food safety – Should you be selling or producing food or beverages for customers, then you will be governed by the specific government’s legislation around food safety. This typically encompasses areas such as quality and safety along with food handling and storage. Typically the governments health authorities tasked with monitoring food safety will have the authority to conduct investigations at your place of business to ensure you are in compliance with applicable law and big penalties and even prosecution can ensue. It also pays to know that in most jurisdictions you will need to acquire a permit in order to be involved in a business which concerns the production and resale of food and beverages and such permits typically require annual renewal.
• Product packaging and labeling – The packaging and labeling for your products needs to be clear and precise and not be misleading to the customer or difficult to find. Packaging will also need to be safe and in the modern era compliant with any environmental legislation.
• Anti-competitive practices such as price fixing and misleading advertisements – A pretty obvious one, but price fixing and uncompetitive practices to exploit a dominant market position can be quite common in certain industries and thus needs to be legislated against in order to support effective competition to drive value for the customer. Misleading or offensive advertisements are also a no go.
• Terms and conditions – I don’t know about you, but as a consumer I am typically quite negligent when I see an organisations terms and conditions. As a busy customer I simply don’t have time to read through pages of complex legal terms governing the business transaction and simply assume they are reasonable so that I can make my purchase and move happily along with my day safe in the knowledge that I haven’t just signed my entire portfolio of assets away by purchasing a Game of Thrones box-set. Fortunately the government knows we as customers don’t have the time, nor the knowledge or even the capacity (I can’t imagine negotiating my individual terms of sale with Amazon) to deal with these terms and they have therefore introduced legislation that governs areas such as returns and unfair contract terms that seek to protect customers.

Tip – When it comes to consumer protection, this protects individual consumers. Business to Business transactions have far less protection as a business is considered to have competency and resource to be able to negotiate their position from a contractual perspective.  

Commercial Law and Employment Law

Employment law governs how you hire, manage and dismiss any employees in your organisation. Again such legislation can vary dependent on the jurisdiction within which you do business, so it is important to read up on the basics using articles from the relevant governmental body in order to ensure you set up employment contracts in a compliant manner.

Employment law and standards is not only different across different jurisdictions, but it is also a body of law that is ever-changing and one body with which your HR department should be well versed in. It is highly recommended that you seek the advice of a professional lawyer before drafting up employment contracts and hiring employees as this will ensure you have the appropriate contractual terms and conditions template in place to govern the behavior of your staff. Without a good contractual template, the terms may be too vague and thus interpreted in a court of law differently to how you had originally envisaged which could spell potential disaster.

Employment law covers a pretty vast area of different regulations, but some of the main topics covered are as follows:

• Maternity and parental leave – This area covers the law regarding the length of maternity and paternity leave along with the rates of pay and rules around the protection of the roles availability to the employee once the period of leave is over
• Vacations with pay – A pretty self explanatory area which covers the amount of paid vacation days that need to be offered to the employee.
• Harassment – Harassment law is becoming more and more significant in the workplace with regulations and policies adapting to eliminate harassment that has become commonplace in certain industries or organisations
• Termination – Termination governs the law around how you must act when looking to terminate an employment contract. You must be careful to be in compliance with the law in this regard in order to avoid any wrongful dismissal cases in future
• Minimum wage and overtime – This governs the pay conditions of your employees and the right to additional pay for any overtime worked. You should have a clear policy around overtime and ensure that the wage/salary offered to the employee in question is clearly documented and agreed between both parties whilst also meeting the minimum value required by law.
• Hours of work – Different jurisdictions will have different rules around the amount of hours an employee can work each week, along with rules around breaks and working on consecutive days.
• Privacy – Employees like customers will need a policy governing their personal and private information which is held by the organisation and be fully aware and accepting of how this information is processed, stored and used.
• Sickness and leaves of absence – There will always be rules around paid sick days and leaves of absence and generally by law a number of paid days will need to be offered
• Non-competition – This is an important clause to protect your business in the event that one of your employees with insider knowledge seeks to leave the organisation for a competitor
• Occupational health and safety – Health and safety has rapidly become a significant area in business and ensuring you offer a safe work environment to your employees is paramount in any circumstances.

Contract Law

Contract Law is probably one of the most synonymous areas with commercial law and is often found at the heart of most legal cases concerning business. This is because contractual documentation governs a lot of the fundamental operations and underpins many of the relationships that a business holds. For example, contracts for sale will cover your business to customer relationship, contracts for supply will govern your supplier relationships and contracts for employment will govern your organisations’ relationship with staff.

So what is a contract?

Contracts can be both written or verbal (although written is always preferable for enforceability) and essentially act as a legally binding agreement between 2 or more parties who intend to exchange goods, services, money or property. For a contract to be legally derived, it must have 4 basic elements:

1. Offer – There must be a promise from one party to enter into a contract on certain terms. For example, offering a personal training service for £30 per hour would be an offer to contract.
2. Acceptance – Once an offer is on the table, it must be accepted by another party to create a contract. For example if somebody accepted the contract above to retrieve 1 hour of personal training, that would create a contract and the party will need to pay £30 and the personal trainer would need to deliver the service. If the party wishes to negotiate the terms, this is known as a counter-offer and is effectively a rejection of the original offer and would then need to be accepted by the other party before a contract could be made.
3. Consideration – This essentially means that a party cannot enforce a contract unless they have given or promised something in return. A court does not look behind the value of consideration even if it is inadequate as it is up to the parties contracting to ensure consideration meets expectation
4. Intention to create legal relations – The parties involved must be intending to create a legally binding agreement for a contract to be created. For example asking a supplier for a quote or putting together an offer that is “subject to contract” would not create a legally binding contractual relationship as it is clear to the courts that the parties had at that stage not entered legal relations.

Once a contract is created between two parties, it becomes legally binding and the relationship of the parties will be governed by the agreed terms. It definitely pays to have these terms in writing as should an issue occur a clear written contract can establish what a breach would be and what remedy the party seeking damages could expect.

In the event one party fails to deliver on their obligations under the contract or otherwise breaks the contract then the party that has been harmed will be able to bring a lawsuit against the party they believe to have broken (breached) the contract. The legal process litigation then determines whether the contract has in fact been breached or whether there are circumstances that mean this is not the case.

In the event of a breach there is often a number of remedies the party that has been harmed can seek to realise including:

• Monetary damages for losses
• Contract rescission
• Equitable remedies such as an injunction
• Business mediation or other alternative dispute resolution methods

Often remedies will be determined within the contractual wording and the degree of remedy will vary with the nature of the breach and the level of damaged caused. In the event that remedies are not determined within the contractual wording, the courts will have to decide on an equitable remedy given the nature of the breach and the extent of loss incurred by the party affected.

It typically pays to consult a legal professional when writing or negotiating a contract, but there are certain elements that should be included:

• Term – You should look to define the length of the contract and define what would happen to the contract following the expiry of the term e.g. would it continue on a rolling monthly basis?
• Termination – You should include clauses around termination including how a party would go about terminating the contract and whether there would be any penalties to do so.
• Scope of work and deliverables – Defining what services, products etc should be provided in the contract in exchange for respective payment is a necessity. This can get especially complex in supplier contracts in which there may be Key performance indicators and related service credits established in order to monitor and manage performance
• Payment and Payment terms – It is necessary to define how the party is expected to pay and whether there is any credit facility in place (e.g. net 30-day payment terms). This section should also define penalties should payments be late and/or discounts as a result of earl payments.
• Liability and Limitations of Liability – Liability is typically a big section in any contract and you would want to ensure you map out exactly what each party would be liable for in the event of an issue as well as the caps on that level of liability
• Change Control – Should you wish to make changes to the contract in future, there should be a fair and structured process for doing so requiring the signature of both parties.
• Confidentiality – In many business relationships there is often situations in which a party is privy to confidential information. Clauses for this need to be designed in order to provide protection against the other party using or selling your confidential information
• Intellectual property – Intellectual property clauses are intended to put safeguards in place to ensure the other party doesn’t use your IP in a manner that you don’t intend (e.g. using it for resale). Clauses concerning IP can also be used to safeguard potential future outputs e.g. if you hired a consultant to work with you in creating a new product, you would want to ensure it was clear as to which party held the rights to the output.
• Data protection – Data protection has been a hot topic for a while with General Data Protection Regulations coming into place in many countries. Essentially this section of a contract should spell out what personal data may be shared under the contract between the two parties, how this will be stored, managed and processed and what if any third parties would have access to it
• Force majeure – A force majeure clause intends to free the parties form liability in the event of an unforeseeable circumstance that would prevent a party from fulfilling its obligations (e.g. an earthquake).

Intellectual Property Law

Intellectual Property Law is designed to protect and enforce the rights of the creators and/or owners of inventions, writing, music, designs or other works. It essentially has 4 main areas:

• Copyright Law – Protects the rights of the creators of art, publishing, entertainment, software etc. The laws essentially protect the owner from their work being copied, presented, displayed or resold without permission
• Patent law – A patent grants protection for a new invention such as a product, design or process and ensures the specifics of how it works cannot be copied. The patent owner then had the right to license, sell, mortgage or assign these rights to use the invention.
• Trade secrets – As above, a business may wish to protect its trade secrets when creating a contractual relationship with another party in order to ensure such secrets cannot be resold or given away to others. For example, contracting with an organisation such as Coca Cola may provide insight into their formula and as such, information which provides such significant competitive advantage would need to be protected and kept confidential

Business insurance

In addition to law, it is also important to take a risk averse approach, not only knowing the legal guidelines, but also retaining the appropriate protections so that in the event there is a case against you, you can avoid bankrupting your company or yourself!

This is where business insurance comes in. Business insurance coverage is designed to protect businesses from losses that may occur during the normal course of business activity and can therefore include a multitude of areas ranging from property damage to employee related risks.  The following are the main types of business insurance:

• Professional liability insurance – This insurance protects against negligence by you or your employees during the course of delivery. This could include mistakes and/or a failure to perform and adequate insurance will vary dependent upon the nature of the business. It pays to look at this from a risk perspective and fully understand what could go wrong (e.g. food poisoning in the case of a restaurant) so that you can insure against that risk.
• Property insurance – Covering property, equipment and inventory in the event of fire, storm or theft.
• Home-based business insurance – Home owners’ insurance does not cover home-based business and a separate insurance policy will be needed to insure the commercial operation.
• Product liability insurance – If your business manufactures a product to sell then product liability insurance is very important to protect against lawsuits should the product cause damages
• Vehicle insurance – Any company vehicles need to be fully insured
• Business interruption insurance – This is a type of insurance that is especially applicable to businesses with a physical location such as retail stores or manufacturing plants. Such insurance compensates a business for lost income during events that cause disruption to the normal course of business.

You may also like

Human Resources Marketing Business Structure Financial Forecasting and Price Modeling