Business Law for Entrepreneurs

One person, doing business for profit? You are a sole proprietor. This is the simplest business structure. All profits go to the owner and are taxed to the owner -- but -- if the business is sued or goes bankrupt, the owner's funds are fully exposed to liability.

A corporation is the most complex form of ownership. A corporation is owned by shareholders (also called stockholders), who are fully protected in case of bankruptcy or legal liability. All profits are taxed to the corporation, and then again when they are distributed to shareholders, resulting in the possibility for double taxation of profits.

View a full, point-by-point comparison of all four traditional business structures in this super-simple bonus video. One minute to mastery!

A contract is a promise which is enforceable by law. In order to be a true contract, it requires:

• offer by one party
• acceptance by the other party, and
• consideration - some sort of value. Even a promise to pay, can act as consideration.

A contact can be written, verbal, or implied by the circumstances.

Sometimes a contract can have all the required elements and still not be enforceable. Some defenses to a contract claim include:

• lack of mental capacity (including age),
• duress (force or threat),
• undue influence on a person weakened by sickness or age,
• unconscionably -- when the decision is so unfair as to be against our sense of conscience,
• misrepresentation/fraud, or
• frustration of purpose, when the contract simply became impossible to fulfill, due to outside forces.

When a contract is breached (broken), a court of law will try to restore parties to where they would have been, had the contract not been breached.

The most common court-imposed remedy is monetary damages (payment), especially:

• reimburse costs: almost always
• reimburse profits: sometimes
• punitive damages - almost never .

Courts may also impose an injunction, preventing someone from acting, or rarely, specific performance, which is forcing a party to provide a service as written in the contract.

Parties have a duty to mitigate (limit) the losses.

As we know, most contracts are valid whether they are written, oral, or implied by the circumstances.

Most jurisdictions, however, have adopted some form of the "Statute of Frauds". (A "statute" is a law that is written and recorded in the law books. The "statute of frauds" was designed to reduce contract fraud.)

Under this legislation, the following types of contracts are enforceable only if they are in writing:

• marriage/nuptual contracts
• contracts that must be executed over one year or more
• contracts for real estate (land)
• contracts related to an executor of a will
• contracts for goods over $500 (the amount can vary)
• contracts for guaranteeing to pay another person's loan: "suretyship"

Easy memory aid?

"My Legs".

An Agent is someone who represents a Principal to a third party. Authority to act as an agent can be "express" (written or verbal) or "implied", as with an employee, or even a family member, whose authority is implied by the nature of the position.

What if there is no agency relationship, but someone else believes there is?

If a third party reasonably relies on "apparent" agency authority, then a Principal may be held responsible, even if that person had no actual authority to act as an agent.

An agent must act within the "scope" of authority, or else their agency is not valid.

A Principal can also go back and "ratify" a decision, making it valid, even if at the time the other party was not acting with actual agent authority.

As we know, a corporation is owned by shareholders, and is subject to certain incorporation requirements, costs, taxation, and special liability status.

The Board of Directors is the primary agent of a corporation, making decisions and representing the corporation to the outside world.

The Board has a very high fiduciary duty to represent the interests of the shareholder-owners.

The Board must also meet all the corporate legal maintenance obligations, or else, in lawsuit, a court may choose to "pierce the corporate veil," eliminating liability protection for the owners.

The Board of Directors' fiduciary duty includes an obligation to to exercise due diligence by carefully reviewing all options. If they don't, they can be sued by the shareholders of the corporation for not representing their interests.

As we know:

• a corporation is owned by shareholders
• Directors are voted by the shareholders
• Directors have a full high-level obligation to the shareholders
• and can be sued in a court of law by the shareholders

Therefore, if a corporation behaves in a manner that violates human rights or environmental standards, WHO might be said to be responsible for corporate behavior??

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