This article is written by Kishita Gupta, a graduate of the Unitedworld School of Law, Karnavati University, Gandhinagar. This article discusses the business law structure, which comprises various laws that help a businessman in their daily life in the United States of America.
It has been published by Rachit Garg.
The biggest economy in the world, the USA, is teeming with fantastic business opportunities. In order to create a firm in the US, one must take into account some basic principles of US business law (Corporate Law USA), which are explained in this article. Business law in the United States can be broadly defined as any law that influences how a business is conducted in America. As a result, it may cover topics like information privacy legislation and bankruptcy. To gain a deeper understanding of the subject, it is necessary to have a working knowledge of a few classic areas that make up the foundation of American business law.
Business law attorneys are frequently retained for transactional work as well as to assist a company in averting further litigation. When contemplating business law and its function within the legal system, it may be useful to think of a business as a different entity from the owners or employees. Similar to how people coexist in society, businesses are bound by laws, and these laws are intended to provide equal opportunity for all market participants. In this article, we will be studying various aspects involving business law in the United States.
Objectives of Business Law
Business law is created with one specific goal in mind: to teach the businessman how to comprehend the legal implications of his actions as he does business. The following are some of the objectives of studying business laws:
- To gain knowledge of the role of law in society and its workings;
- To become extremely well-versed in the fundamental business law concepts;
- To increase one’s ability to use this knowledge in a systematic, analytical, and logical way as part of the decision-making process necessary for sound management;
- To incorporate this legal knowledge with the topics and learning goals of other curricular areas and to support those areas so that the student develops a well-rounded understanding of both those disciplines and of business as a whole; and
- Business law teaches the legal skills that every businessperson, especially business managers, needs to know in order to do business safely, sensibly, and within the bounds of the law.
The Internal Revenue Service (IRS) of the USA requires every business to classify itself as a specific type of legal entity among various forms of available business entities. Some of these are as follows:
An individual, a business, or a limited liability partnership can all own and manage a sole proprietorship. The company doesn’t have any partners. A sole proprietorship has the following legal standing: It is not a different legal entity from the proprietor of the business.
A sole proprietorship is the most straightforward form of business organization and can be formed with no paperwork. This condition will arise naturally from the proprietor’s company operations. There is no separation between the proprietor and the company; the proprietor has complete control over the sole proprietorship, is entitled to all earnings, and is liable in full for all losses, obligations, and liabilities of the company. Additionally, the proprietorship does not need to pay a separate income tax; all gains and losses are declared on the individual’s tax return. According to your sector, the only legal costs that might be involved are those for any licences and permits you might require.
Your sole proprietorship does not have to be taxed separately from your Social Security number due to a taxing system known as pass-through taxation. As a result, all you need to do is report your business’s profits and losses to the IRS on a Schedule C form and Form 1040 and file your taxes as usual. Additionally, among all business structures, sole proprietor tax rates are the lowest.
By definition, a partnership business consists of two or more individuals who pool their resources to create a company and agree to split the risks, rewards, and losses. Law firms, medical groups, real estate investment firms, and accountancy groups are typical instances of partnership businesses.
The two types of partnerships are limited partnerships and general partnerships, where one partner controls the majority of activities while the other contributes to and shares in the profits. Each participant in a general partnership is personally liable for the business’s debts and legal liabilities. However, just one partner bears the risk in a limited partnership. Depending on the kind of partnership the person is participating in, they may be held liable. Normally, partnerships are exempt from paying income tax. It is the responsibility of both partners to disclose any shared gains or losses on their individual tax returns.
Limited Liability Companies
A Limited Liability Company (LLC) is a hybrid unincorporated business structure that combines the protection of private assets offered by the corporation with the pass-through tax model of partnerships and sole proprietorships. Members of an LLC are the owners of the company.
Members of an LLC, as the name implies, are only partially personally liable for the debts incurred by the company. In contrast to other commercial structures, owners of an LLC are referred to as ‘members’ and are not held personally liable for the company’s debts or legal actions, provided that members don’t engage in fraud or illegal activity.
Due to its ideal balance of convenience and personal asset protection, an LLC is a preferred choice among small business owners. However, you must carefully weigh your options when deciding what kind of corporate entity your company should be.
An organization called a corporation is one whose shareholders choose a board of directors to manage its operations. The corporation, not the shareholders, is responsible for the operations and financial health of the company. C corporations, S corporations, B corporations, closed corporations, open corporations, nonprofit corporations, and others are among the several forms of corporations. A corporation’s owners and stockholders are not held legally or financially accountable for any accusations made against them. A corporation’s tax liabilities are determined by the type of corporation it is registered as, and it submits its corporate taxes separately from personal taxes.
Various business laws in the U.S.
US Tax Laws
The federal and state governments each have their own tax systems. Taxes come in many forms, including income, sales, capital gains, etc. The taxing powers of the federal government and each state are wholly distinct from one another. State taxes are not a matter for the federal government to meddle in. Each state has a unique tax structure that is distinct from those of the other states. There could be many jurisdictions within the state that levy taxes as well. For instance, in addition to state taxes, counties or towns may impose their own school taxes.
The Internal Revenue Code (IRC), which Congress passed into law as Title 26 of the United States Code, is the first piece of federal tax law (26 U.S.C.).
Financial reporting and income tax are different because income tax is calculated in accordance with the tax accounting rule. There must be no misunderstandings about how taxable income from financial reporting works. For instance, in the case of federal tax refunds, a businessman will include all income even though it is non-taxable and the Internal Revenue Service (IRS) will not tax that exempt income while compiling a balance sheet and other financial papers of the firm.
What taxes you must pay and how you pay them will depend on the type of business you run. The five main categories of business taxes are listed below.
Except for partnerships, all businesses are required to file an annual income tax return. Partnerships submit a report of information. The form you use will depend on how your company is set up. For information on which returns you must submit depending on the business entity you established, see Business Structures. A pay-as-you-go tax is the federal income tax. As long as you earn or receive money during the year, you must pay the tax. Typically, an employee’s compensation has income tax taken from it. You may need to pay an estimated tax if you do not pay your taxes through withholding or if you do not pay enough tax that way. If projected tax payments are not required, you can pay any taxes due when you file your return. Refer to Publication 583 for more details.
In general, you must pay income taxes on a regular basis throughout the year, including self-employment tax (described below). Please see Estimated Taxes for further details.
A social security and Medicare tax largely applied to those who work for themselves is known as the Self-Employment tax (SE tax). Your social security benefits are influenced by the SE tax payments you make. Retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits are all provided through social security coverage.
In general, if one of the following applies, you must pay SE tax and submit Schedule SE (Form 1040 or 1040-SR):
- If your self-employment net earnings were $400 or greater.
- If you work for a qualified church-controlled organization or a church that has chosen to exempt itself from social security and Medicare taxes, you are subject to SE tax if your employer pays you $108.28 or more in wages (unless you are a minister or a member of a religious order).
Aliens, fishing crew members, notaries public, workers of state or municipal governments, staff members of foreign governments or international organizations, etc., all have different policies and exclusions. Refer to Self-Employment Tax for more details.
You have various employment tax obligations as an employer when you have employees, including payments and documents to complete. Taxes on employment include the following:
- Medicare and Social Security taxes
- Withholding of federal income tax Federal Unemployment (FUTA) tax
Read Employment Taxes for small businesses for more details.
If you do any of the following, you may be required to pay excise taxes and submit the documents described in this section:
- Manufacture or sell specific goods.
- Run specific business ventures.
- Utilize a variety of tools, resources, or goods.
- Obtain payment for specific services.
Form 720 reports that the federal excise taxes consist of various categories of taxes, which include the following:
- Environmental taxes.
- Communications and transportation by air taxes.
- Taxes on fuel.
- Tax levied on the first retail sale of heavy trucks, trailers, and tractors.
- Manufacturers tax on the sale or use of a variety of different articles
Certain buses, truck tractors, and trucks that are utilized on public highways are subject to a federal excise tax. Vehicles with a taxable gross weight of 55,000 pounds or more are subject to the tax. Use Form 2290 to report the tax. Consult the Form 2290 guidelines for more details.
The federal excise tax on gambling may apply to you if your line of work involves taking bets or running a pool or lottery. To calculate the tax on the earnings, use Form 730.
To register for any wagering and to submit the federal occupational tax on wagering, use Form 11-C, Occupational Tax and Registration Return.
Intellectual Property Law
Federal and state laws as well as international agreements carried out by the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO) govern intellectual property law in the United States. The United States Patent and Trademark Office (USPTO) is a federal organization with the responsibility of issuing U.S. patents and registering trademarks. They aim to promote IP protection on a global scale and provide policy and enforcement advice to the President, the Secretary of Commerce, and other government departments.
The foundation of current copyright law in the United States is the Copyright Act of 1976. On January 1st, 1978, it went into force, bringing about significant and comprehensive modifications in many areas of copyright law. To account for new forms of media, copyright protection is extended to all “original works of authorship”. In order to avoid having to regularly update copyright laws to take into account the emergence of new technologies and forms of expression, such as still photography, motion pictures, or recordings, Congress chose this broad phrase.
Federal and state laws both apply to trademarks. Initially, state common law served as the primary means of trademark protection. However, the first federal trademark law was passed by the U.S. Congress in the late 1800s. Since then, federal trademark law has steadily grown, displacing a significant portion of the territory originally governed by state common law. The Lanham Act, which was passed into law in 1946 and most recently revised in 1996, is the fundamental federal statute. The primary and, by far, most comprehensive source of trademark protection today is federal law, though state common law actions are still an option. This summary’s treatment of federal law dominates.
The Patent Act (35 U.S. Code), which created the United States Patent and Trademark Office, governs patents in the United States (the USPTO). A utility patent is the most common kind of patent. Utility patents are valid for twenty years from the date of filing. However, they are not immediately enforceable. Ornamental designs are protected by design patents. New types of asexually reproducing plants are covered under plant patents.
The USPTO will assess the patent application and determine if the innovation is patentable in order to grant the applicant protection under US law. The right to prevent others from creating, using or selling innovations is granted to patent holders by U.S. law.
US securities laws
Common stock markets are the primary subject of securities legislation. Securities are subject to both federal and state legislation. At the federal level, the Securities Act of 1933, which governs the public offering and sale of securities in interstate commerce, was passed by Congress shortly after the Great Depression. This Act also mandates the disclosure of specific facts to the potential securities purchaser and forbids the offer or sale of a security that has not been registered with the Securities Exchange Commission.
The Securities Exchange Act of 1934 was then introduced by Congress because it was necessary to establish a body to oversee the enforcement of those laws. Since then, the SEC has been tasked by Congress with enforcing federal securities laws. By mandating businesses to give accurate information, the registration requirements established by the 1933 Act sought to empower buyers to make informed selections.
Tort laws in the USA
Torts in the context of business law can be either deliberate torts or negligence. Companies operating in particular industries should also take product liability into account. Product responsibility refers to a consumer’s legal action against a business for a defective product that results in the customer’s loss or harm. There are various theories around product liability recovery. These include contract theories that address product warranties and describe the guarantees made about the characteristics of products delivered to clients.
Express warranty, implied warranty of merchantability, and implied warranty of fitness are the contract product warranty doctrines. Tort theories deal with consumer claims that a business was negligent and, as a result, caused the plaintiff’s physical pain, mental distress, or financial loss. The theories of tort liability that may be applied in this situation include strict responsibility, negligence, and conduct covered by the Restatement (Third) of Torts. Negligence is the failure to exercise reasonable care with respect to something (basic elements of a tort action for liability for accidental personal injury and property damage, as well as liability for emotional harm).
US contract laws
Common law or judicial case law governs American contract law for services, land use, and land sales. Certain of these concepts have been codified by some legal experts as the Restatement (Second) of Contracts. This treatise has persuasive rather than legal consequences. Law students frequently use it to comprehend the fundamental principles of contract law. However, the codified Uniform Commercial Code (UCC) Article 2 governs the sale of goods.
Most businesses perform their daily operations in significant part thanks to business contracts. In a conventional business agreement, one party commits to providing something for the other in return for payment (typically monetary compensation). These agreements are often drafted in writing and signed by both parties.
A party must make an offer that the other party accepts in order for a contract to be made. Contracts typically state who will carry out a duty. They may include information on delivery dates for the goods and other deadlines.
Federal and state regulations governing business activity and structure make up antitrust legislation. Such rules are put in place so that consumers might gain from the encouragement of honest competition. The Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914 are the key laws that antitrust law affects. By outlawing the formation of cartels and other forms of collusion, these Acts prevent trade constraints. By prohibiting certain organizations from merging or being acquired, they also promote competition. Finally, they forbid the development of monopolies and their exploitation. The Federal Trade Commission (“FTC”), the U.S. Department of Justice, state governments, and private parties may file legal actions to enforce antitrust laws.
The Sherman Antitrust Act
All agreements, partnerships, and schemes that excessively restrict domestic and international trade are prohibited under this Act. This involves agreements between rivals to fix pricing, rig bids, and allocate clients, all of which are considered felonies and subject to harsh penalties.
Monopolizing any aspect of interstate commerce is also illegal under the Sherman Act. An illegal monopoly emerges when one company dominates the market for a good or service, and it does so not through the superiority of its goods or services over those of competitors, but rather by stifling competition through anti-competitive behavior.
However, the Act is not violated simply because a firm’s aggressive rivalry and cheaper pricing drive away customers from its less effective rivals; in that scenario, the market is functioning normally.
The Clayton Act
This Act forbids mergers and acquisitions that are likely to reduce competition, but carries no criminal sanctions. In accordance with this Act, the government opposes mergers that are likely to raise consumer prices. The Antitrust Division and the Federal Trade Commission must be notified by anyone seeking a merger or purchase of more than a specified size. The Act forbids further business practices that, in some situations, can hurt competition.
The Federal Trade Commission Act
Although this Act forbids unfair business practices in interstate trade, there are no corresponding criminal penalties. Additionally, it established the Federal Trade Commission to oversee Act infractions.
Employment and labor laws in the USA
More than 180 federal statutes are administered and enforced by the U.S. Department of Labor (DOL). Around 150 million people and 10 million workplaces are covered by these mandates and the regulations that put them into effect. The National Labor Relations Act, 1935, which regulates union and management relations, as well as Equal Opportunity in Employment laws, which give employees protections against workplace discrimination, such as Title VII, the Americans with Disabilities Act, 1990, the Age Discrimination in Employment Act, 1967, and others, are some of the noteworthy areas of employment and labor law. While some of the major labor laws of the USA are discussed as follows:
Fair Labor Standards Act
The federal minimum wage and overtime compensation, which is one and a half times the ordinary rate of pay, are set by the Fair Labor Standards Act, 1938 (FLSA). Additionally, it restricts child labour by putting a cap on how many hours children can work. However, some American states have distinct overtime and child labor laws, as well as greater minimum wages. State law would be in force there.
The Employee Retirement Income Security Act
The Employee Retirement Income Security Act, 1974 (ERISA), which regulates fiduciary, transparency, and reporting obligations, is in charge of overseeing employers’ pension systems. Although ERISA doesn’t apply to all private employers and doesn’t mandate that businesses offer benefits to employees, it does establish requirements for plans, should businesses choose to do so.
The Family Medical and Family Leave Act
Employers with more than 50 employees are required by the Family Medical and Family Leave Act, 1993 (FMLA) to offer employees up to 12 weeks of unpaid, job-protected leave for childbirth or adoption, serious illness of the employee, a spouse, child, or parent, or for emergencies connected to a family member’s active military service, including childcare needs. Coverage may be extended for up to 26 weeks of unpaid leave over the course of a year if the active service member suffers a significant illness or injury while performing their duties.
The Occupational Safety and Health Act
To ensure that workplaces don’t present any significant risks, the Occupational Safety and Health Act, 1970 (OSHA) oversees health and safety conditions in private-sector companies. A poster describing employees’ rights to request an OSHA inspection, how to get training on hazardous work environments, and how to report problems must be posted in the workplace by covered firms.
The US Constitution and business
Since the turn of the 20th century, expansive interpretations of the Commerce and Spending Clauses of the Constitution of the United States have increased the scope of federal law’s application. In some locations, it actually has such a broad scope that it preempts almost all state legislation. As a result, the Commerce Clause of the Constitution has been read to permit the federal government to enact and execute laws that include many different types of economic activity. Additionally, many of the protections given to individuals by the Constitution’s Bill of Rights are also extended to businesses.
For instance, the U.S. Supreme Court heard arguments in Citizens United v. Federal Election Commission (2010) regarding whether the government has the authority to prohibit corporate political expenditure in candidate elections. The Court overturned the restrictions on contributions by holding that companies have the same constitutional right to free expression as individuals.
Most people focus on the rights of the people rather than those of the government while reading the United States Constitution. These rights, however, also have a variety of effects on businesses. The Bill of Rights outlines the freedoms that citizens are guaranteed, and, in many instances, these freedoms also extend to businesses that citizens control.
The Constitution’s Commerce Clause grants Congress the authority to control trade between states, American Indian tribes, and other countries. The Commerce Clause has historically been read narrowly, but under the affectation concept, almost all domestic commerce is governed by federal law. The affectation concept holds that Congress has control over any commerce that significantly affects commerce between states. It is crucial for corporate organizations to understand that even locally focused commercial operations may be subject to federal legislation.
Bankruptcy laws of the USA
Article 1, Section 8, Clause 4 of the United States Constitution places bankruptcy in the country under federal authority. This clause permits the enactment by Congress of “uniform laws on the subject of bankruptcies throughout the United States.” Title 11 of the United States Code is another name for the US Bankruptcy Code, widely known as the Bankruptcy Reform Act of 1978. It sets forth the steps that organizations and people must take in order to file for bankruptcy in the United States Bankruptcy Court. Additionally, individual states have the authority to adopt regional modifications to bankruptcy legislation. Despite the fact that bankruptcy proceedings are always filed in the United States Bankruptcy Court (a federal court), they frequently depend, at least in part, on state rules, such as legislation governing exemptions.
Filing for bankruptcy
Any bankruptcy-related cases must be filed in a federal court, not a state court, as federal courts have exclusive jurisdiction over them:
- You must complete a petition and submit it to a bankruptcy court as the initial step in declaring bankruptcy. An individual, married couple, or company may file this petition.
- You must include your income, liabilities, assets, and the names and addresses of your creditors, along with the outstanding balances on the form.
- After you submit a bankruptcy petition, creditors are prohibited from bothering you. There will be no more wage garnishments, lawsuits, or threats of lawsuits.
- If you own any valuable assets, they may be sold to pay off your debt. If not, a bankruptcy lawyer can assist you in creating a repayment plan. Rarely, your debts will be ‘discharged’ without any opposition if you genuinely lack the resources to pay your creditors.
Immigration laws for employers
Immigration law has an impact on all U.S. business owners, whether they are acquiring H-1B visas for their high-tech staff or reviewing the I-9 forms of migrant farm workers.
Employment eligibility verification
Employers have always been obligated by federal law to confirm an employee’s right to work in the United States. In recent years, the Department of Homeland Security (DHS) has started severely enforcing employment eligibility verification and established new regulations about how this is to be accomplished. I-9 eligibility paperwork must be completed by employers three days after an employee is hired. In order to verify the employee’s identity, national databases are checked for their names, date of birth, address, and Social Security number.
Alien labor certification
Employers must typically first apply for an alien labor certification on behalf of any employees they wish to sponsor for a green card. Sponsoring workers for residence can be a laborious and complicated process.
E – verify basics
In collaboration with the Social Security Administration (SSA), DHS keeps a database of legitimate Social Security numbers and the identities of the people linked to them. Employers can now utilize this system to electronically check a candidate’s eligibility for employment; in some situations, they are even forced to. E-verify must be used by federal contractors and businesses that work with some state governments. State legislatures have progressively passed legislation mandating the use of E-verification for all newly hired employees by public and even private enterprises. A “tentative non-confirmation” (TNC) results when the information entered does not match the information in the DHS/SSA database, and both the employee and employer must take action to correct the situation.
To conclude, it would be correct to mention that a branch of the law known as ‘business law’ is concerned with safeguarding freedoms and rights, upholding the law, settling disputes, and creating guidelines for business concerns in their interactions with both the government and private citizens. Every state establishes a unique set of rules and laws for corporate entities. Similar to this, it is the duty of business concerns to be aware of the laws and rules that apply to them. Thus, in the United States, there are various laws, some of which are discussed above, that play an important role in regulating day-to-day business activities.
Frequently Asked Questions (FAQs)
Does the USA have a codified business law?
No, the USA doesn’t have a codified business law, particularly because business laws constitute various different laws such as taxation laws, bankruptcy laws, labor laws, etc., and the USA has codified legislation for most of them.
Which form of business entity is the most common in the USA?
In the USA, a sole proprietorship is the most common form of business entity. An individual, a business, or a limited liability partnership can all own and manage a sole proprietorship. The company doesn’t have any partners. A sole proprietorship has the following legal standing: It is not a different legal entity from the proprietor of the business.
What is the importance of business laws?
Business law is essential in governing how businesses operate in a nation. From employee compensation-related issues to the rights of the shareholders to the business formations, business laws are everywhere.
- US taxation system – iPleaders
- United States Business Law: Everything You Need to Know
- Understanding State Laws versus Federal Laws
- The Essential Corporate Law in the United States (USA) – ILP Abogados.
- What is Business Law and Why is It Important? | Johnston Thomas Law.
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