Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

The concept of business law, its sources, and what constitutes ‘business law’ in a
national legal system

What is business law and how does it differ between the national and international
levels?
In most national legal systems, Business Law – which is often also known as
Commercial law – can be described as the body of rules governing the dealings
between persons and organisations engaged in commercial matters.

In contrast, the definition of international business law is similar except that it

concerns the body of rules and norms covering the commercial dealings between
persons and organisations in different countries. It’s therefore the law that regulates
the relationships and practices of the global business community.

In this globalised world, international business law is increasingly important,

especially when you consider that more than half of all business transactions are
done across borders. International business law concerns many different legal issues
such as the rules governing trade and sales, how to deal with disputes, the
organization of a multinational business, questions of intellectual property, and
matters relating to investment, financing and taxation.

It’s also important to understand that international business law builds upon the
main legal principles applicable in most domestic legal systems, so its crucial to have
a clear understanding of the key components of business law at a national level
before enlarging to the international field.

For the purposes of this video, the main focus will be on the English legal system,
which is a source of law for many of the world’s domestic legal systems, and is an
important influence on business law across the world.

So, why is business law important? Almost all aspects of business are regulated by
the law, and whether you’re currently in business or planning to become involved
it’s crucial to have at least a basic understanding of the many legal issues which are
likely to arise.

During the course of running a business, the owners or senior staff responsible for
running the business are likely to encounter a huge range of legal issues during the
course of their day-to-day duties.

Typically these legal issues include contract and commercial law, company law,
tort, labour law, intellectual property, and sometimes insolvency.

We will touch on some of these distinct areas of law in just a moment.

Where does it come from? The sources of business law

Before doing so, it’s useful to consider what are the sources of business law. Legal
‘sources’ are the materials and places you examine to understand exactly what the

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Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

law is in a given situation and where it comes from. National business law and
international business law come from different sources, so it’s useful to examine
them both.

With regard to business law at a national level, using the United Kingdom by way
of example, the sources of business law, like most other legal fields, entail a mix of
statute-based legislation (most importantly as Acts of Parliament but also
secondary legislation in the form of Statutory Instruments or By-laws) and
principles set down in the decisions of judges (known as case law or the common
law). Examples of both could be the relatively new Consumer Rights Act 2015,
improving the protection of consumers when entering a contract, and Caparo
Industries plc v Dickman [1990] UKHL 2, which is the leading English case laying
down the test for duty of care. International law in the form of agreements
entered into by the UK government is also important; arguably the most important
agreements are the EU treaties which set up a system through which the UK is
bound by a massive range of treaty obligations, directives, regulations and
European Court of Justice decisions, many of which have an impact on business.
Other important international law stems from the UK’s agreement to the
European Convention on Human Rights, by which the UK is obliged to take account
of European Court of Human Rights rulings, some of which are relevant (such as
decisions on discrimination, protection of privacy etc). There are also secondary
(or lesser) sources of law, such as official reports of government or official
committees, Law Commission recommendations, legal books and articles, which
can be referred to in order to gain a better understanding of the law.

When we talk about international business law (ie the law that applies when an
individual or organisation is conducting business with someone in another country)
it’s important to recognize that the applicable law may be governed by ‘higher
level’ international law as it is generally understood, or it may be that the business
transaction is simply covered by the law applicable in either one or both of the
countries from which the transaction is being conducted. In other words, the
applicable law may have to be determined by examination of whether any
‘traditional’ international law principles are in play or whether the law is governed
by national legal provisions.

As to ‘traditional’ sources of international law, they include international treaties

entered into by states, international customs and general practices of law, all of
which may be relevant. International treaties frequently have an impact on
business operations in different fields; for example treaties relevant to trade
include the World Trade Organisation (WTO) agreement, the General Agreement
on Tariffs and Trade (GATT), and more recently the Transatlantic Trade and
Investment Partnership (TTIP) agreement which is being negotiated between the
US and the EU. It can be seen that generally when a state signs up to a treaty it will
normally become part of a system or a ‘club’ which requires it to comply with
certain obligations, but in return the state, and sometimes its citizens, will gain
beneficial rights and entitlements. An important example of this are the EU
treaties establishing the European Union (as it is now known), which require

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Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

member states to accept four fundamental provisions: that goods, services,

persons and capital can move freely, without restriction. This undoubtedly
powerfully affects businesses which – depending on your perception – brings
positive or negative consequences. Another example of a treaty introducing an
international system with its own laws and institutions for the promotion of
business is the OHADA (Organisation pour l'Harmonisation en Afrique du Droit des
Affaires) Treaty.

Forming the Business

Now let’s consider in more detail the type of issues that can arise when starting up
a business. The first issue is to choose an organisational structure for your
business.

It’s important to get this right as this structure will define your legal
responsibilities, such as:
◦ how you can personally take the profit your business makes
◦ your personal responsibilities if your business makes a loss

The legal forms that a business may take will vary somewhat depending on the
national laws of the country where it is being formed. In the UK, for example, the
main type of business entities recognized by law are:
◦ sole trader
◦ limited company
◦ business partnership
You can also form an ‘unincorporated association’ if you’re setting up a small
organisation like a sports club or a voluntary group and don’t plan to make a profit.

Sole Trader
As a sole trader, you run your own business as an individual. You can keep all your
business’ profits after you’ve paid tax on them.
You can employ staff. ‘Sole trader’ means you’re responsible for the business, not
that you have to work alone.
You’re personally responsible for:
◦ any losses your business makes
◦ bills for things you buy for your business, like stock or equipment
◦ keeping records of your business’ sales and spending.

Limited Company
A limited company is an organisation that you can set up to run your business.
It has legal personality and therefore is responsible in its own right for everything it
does and its finances are separate to your personal finances.
Any profit it makes is owned by the company, after it pays Corporation Tax. The
company can then share its profits.

Every limited company has ‘members’ - the people or organisations who own shares
in the company and Directors are responsible for running the company.

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Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

Business partnership
In a business partnership, you and your business partner (or partners) personally
share responsibility for your business.

You can share all your business’ profits between the partners. Each partner pays tax
on their share of the profits.

What sort of legal issues could a business face?

Once your business is up and running, it will be exposed to a wide range of legal
fields, issues and (possibly) disputes, so any business person should at least have a
rudimentary understanding of the law in order to avoid problems. Two of the main
areas of law likely to be encountered are contract and tort law.

Contract law may be described as the cornerstone of all commercial transactions.

Whenever a business sells goods or services or orders them from others this will
involve contract law. Similarly, a business needs to know the most effective way of
retrieving monies owed to them following the completion of a contract.

In England and Wales a contract is a legally binding agreement made by two or

more persons, enforceable by the courts. They may be written or oral, and to be
binding there must be the following elements:
- an offer and unqualified acceptance,
- intention to create legal relations,
- consideration, and
- genuine consent (i.e., an absence of fraud).
The terms must be legal, certain, and possible of performance.

If one party to a contract doesn't hold up his or her end of the bargain, then a
breach of contract is said to have occurred. This is by no means unusual as it's
common for parties to dispute the terms of an agreement or disagree on how the
agreement should be performed.

Tort
Torts are private, civil actions for wrongful deeds. This is an extensive area of the law
and arise when the law imposes a duty on a individual or company to refrain from
certain activity, such as not discharging dangerous waste emissions, ensuring that
products are safe for use by consumers, and making sure that people who enter a
business’s premises are not subjected to harm. Typically the sort of tort action a
business might face could include negligence claims for work injuries.

Both contact and tort will be discussed in more detail in the video concerning key
legal principles. In addition, other areas include:

Tax
The rules concerning taxation are something that will affect a business. The way
you manage and pay tax will depend upon the organizational structure that has
been created. In most countries businesses will have to pay several types of tax, so

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Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

in the UK, for example, a business would be expected to pay corporation tax,
business rates, value added tax for the supply of goods and services, and also
national insurance contributions for its employees.

Intellectual Property
Intellectual property can be another area of law for some businesses, especially if
they’re involved in creating new products, such a work of literature, software or
commercial goods. Copyright, patents, designs and trade marks are all types of
intellectual property protection.

By knowing your rights and having the right type of protection you can stop people
stealing or copying the names of your products or brands, your inventions, the
design or look of your products; and the things you write or produce

Similarly, when producing a new product, it would be important to check if

another company already has copyrights over a product.

Licensing
Many types of business are regulated by the state, particularly where they concern
matters that could put members of the public at some form of physical harm or
risk. A licence is simply a permission granted by the authorities for a business to
carry out a type of activity. Typical examples include the supply of alcohol or food.
While applications for a licence should normally be straightforward and shouldn’t
demand a high level of legal expertise, failure to comply could lead to the business
not being able to conduct its work or, even worse, face criminal prosecution.

Employment
A business will normally employing staff to carry out its activities, which can give
rise to a whole range of legal issues that are governed by employment law (also
known as ‘labour law’).

This can include:

- hiring and firing staff,
- determining their terms and conditions of employment (such as holiday
leave, sickness, pension entitlements)
- Paying tax and social security payments
- Dealing with workplace disputes and discrimination
- Placing restrictions on staff who have left a business from carrying out
certain activities that compete with those of the business.

Linked to this is Health and Safety law, which concerns preventing employees and
contractors from getting hurt at work or ill through work. As an employer, a
business is responsible for health and safety of its staff. Many health and safety
issues fall under tort law.

Insolvency
The final issue to mention concerns insolvency. Sometimes businesses may be

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Advanced Legal Skills – Introduction to business law, legal systems, and the commercial courts

unable to perform their financial obligations (ie pay monies owed on time), and in
most countries around the world rules have developed to deal with this situation.
When a person or company is unable to pay debts as and when they fall due, a
petition may be made to the court to take over the administration of the estate and
which is then distribution among creditors.

That ends our brief overview of some of the legal issues that you might expect to
encounter during the course of business.