Did you know that over 15 million civil lawsuits are filed in the United States every year? These civil litigations cost an estimated $233 billion in legal fees and other indirect costs. As a business owner, there may be times when you may have to file a lawsuit or defend yourself against one. A basic understanding of the law is necessary as it can help you navigate the proceedings.
At times, you would have to read legal contracts and interact with attorneys. A simple understanding of a few business legal terms may ensure that you do not get lost in the legal jargon. Here are some terminologies that you need to familiarize yourself with to ensure business growth.
It is an agreement between two parties that voluntarily and mutually assume obligations that are enforceable by law. The persons or entities involved promise to do or deliver something in exchange for a valuable benefit. Contracts are at the heart of most business dealings, and you may need to understand the different business legal terms under them. The agreements can be oral or written. You may have unilateral, bilateral, conditional, and joint as some of the different types of contracts.
2. Breach of Contract
It is an actual failure or refusal to honor an obligation stated on a contract. The party at fault fails to deliver on their promise as per the terms of the agreement. The persons or entities involved may decide to resolve their dispute among them through negotiations, mediation, and arbitration. However, the aggrieved party can also file a civil lawsuit. The breach may be minor, material, specific performance, or an anticipatory breach.
3. Force Majeure
It is rather common for contracts to include clauses that protect both parties from liability if an extraordinary event occurs. The circumstances beyond control, such as war, strikes, epidemics, or ‘acts of God’, can prevent one party from honoring their promise on an agreement. Force majeure is only acceptable if the event is too strong to control or couldn’t be anticipated.
4. Intellectual Property
These are intangible rights held by an individual or entity to protect works of human intelligence and creation. These works may be in the form of copyrights, patented inventions, trademarks, and trade secrets. Intellectual property law grants property rights to artists and inventors, protecting them against infringement of their creations. Understanding the different business legal terms is an essential part of protecting your work.
These are intangible rights granted to inventors that permit them to restrict the manufacture, use, or sale of their invention. The restriction to exclude other parties holds for a defined or limited period. Once the time expires, the public can make, use, or sell the invention without any legal ramifications. As a patentee, you can transfer or assign your rights to another person or entity. You can also grant a license for a person to use the invention in return for a royalty.
Most entrepreneurs tend to confuse between the two business legal terms, copyright, and patent. Copyright are rights granted by statute to original content creators for productions in literary, artistic, theatre, and musical works. For a specific period, copyright owners have the right to control the use, sale, and reproduction of their artistic creations. The author can grant or sell the rights to third parties.
A trademark is a word, combination of words, device, or a symbol that shows the source of ownership of a product or service. The symbols act as a mark of authenticity that makes their products or service distinguishable from others. The trademark is a guarantee of the quality and origin of particular products.
This is one of the business legal terms every entrepreneur should seek to understand as it can cost them a lot. Infringement is a breach or violation of rights protected under a patent, copyright, or trademark. The unauthorized actions may involve the manufacture, use, sale, or distribution of the works protected under the intellectual property law without permission or notice.
The owner may file a civil lawsuit demanding compensation for the substantial damage as a result. The court will order that you pay if found guilty of infringement, even if it were accidental.
9. Trade Secret
The US Patent and Trademarks Office defines a trade secret as a formula, pattern, program, device, method, technique, compilation, or process that provides a commercial advantage to a business. A trade secret is commercial information that provides a competitive edge over others that do not have it. Common knowledge can never receive protection as a trade secret.
A lien is a legal right against an asset given by the owner to another to secure a debt or act in favor of creditors. The asset is used as collateral to satisfy a debt. It serves as a guarantee of an obligation for the repayment of the debt. If the owner defaults on payment, the lender may receive the property and sell it, keeping the sale’s proceeds.
11. Due Diligence
It is a measure of prudence, judgment, care, and determination exercised by a person as is expected of them under particular circumstances. It involves an intensive investigation by a reasonable individual looking out to protect their organization or others. Due diligence is a standard used to eliminate negligence on their part. Understanding business legal terms, researching a company before an acquisition and merger, assessment of the legal obligations of a company are a few examples of conducting due diligence.
Indemnity refers to a contract that stipulates an exemption of liability of damages caused. It is an agreement between two parties where one party agrees to pay for potential losses or damages caused by the other. An example is commercial insurance in which an insurer reduces the risk faced by a business owner on losses related to weather, lawsuits, accidents, or any other indemnifiable loss.
13. Worker’s Compensation
A system in which an employer must provide insurance to pay for medical expenses and lost wages if an employee sustains injuries while on the job. The goal is to restore the injured worker to the status of a productive member of staff without harming the employer’s business. A workers compensation lawyer can help injured employee to sue for the right to full compensation.
14. Master Service Agreement
An MSA is a contract made between two or more parties in which they all agree on most of the business legal terms that will govern future transactions. The agreement proves useful while negotiating in the future as parties can refer to the contract to solve their disputes, instead of expensive corporate litigation. It establishes situations in which a legal resolution will occur.
15. Business Entity
Any enterprise or activity formed and administered as per corporate business law, which may legally hold title to assets and aims to make a profit. It may mean a natural person, corporation, limited liability company, partnership, sole proprietorship, professional service corporation, or any legal entity under a particular jurisdiction. It is recognized by law through which the business conducts its operations.
These are rules and regulations made by an organization or corporation that govern its operations. The power to make by-laws is conferred by the business legal terms expressed in the charter during formation. Only persons in whom the charter vested the ability to make the by-laws can make them. If it is not stipulated in the charter, then all organization members can participate in the formation and amendment of the by-laws.
17. Sole Proprietorships
A sole proprietorship or sole trader is an unincorporated business entity that has only one owner. The individual owns all the assets in the business and is also responsible for its debt. The owner pays personal income tax on profits earned from their business and does not have a separate tax on the company. You may only need to register the name of the business and acquire licenses that prove the enterprise’s legality.
It is a relationship between two or more individuals who operate as co-owners of a business for profit. The profits and losses are shared equally as per the partnership agreement. The partners lay out the business legal terms founded on partnership statues adopted across different US states. As the partners are all co-owners of the enterprise, partnerships are not distinct legal entities. The relationship may be classified into two varieties: general partnership or limited partnership.
19. Limited Liability Company (LLC)
It is a hybrid legal entity in which owners are not personally liable for any business debt. The owners participate in the running and management of the organization. However, they are legally protected from liability against the company’s debt or obligations. State laws govern the establishment of an LLC. The minimum requirements vary from state to state. In some, you may need to state additional information such as LLC membership, business purpose, and management structure.
A corporation is a legal entity that is separate and distinct from its owners—for example, a yoga franchise. As a legal entity, the corporation enjoys most rights and responsibilities that an individual enjoys, including entering into contracts, loaning or borrowing money, suing, and being sued. A corporation can also hire employees, pay taxes, and own assets.
Negligence is a failure to take reasonable care to avoid causing injury to another person. When negligent, you fail to act with the level of care as a reasonable person would do. Your conduct falls below the standards set by law for the protection of other individuals against harm. Usually applied in personal injury cases, the plaintiff must prove that the defendant’s negligent conduct was the cause of the harm that befell them. They must also show that it was the defendant’s duty to ensure that the plaintiff is not under any risk of injury through their actions or inaction.
22. Defective products
A defective product is an imperfection in a product, with distinct manufacturing or design defects. It may also be imperfect due to inadequate instructions and warnings on use. The faulty product can be unreasonably dangerous to consumers and may result in physical harm.
Individuals that suffered injuries due to faulty products can use a defective products attorney to sue for compensation. It may be not easy to prove the claim, and the legal theory pursued varies on a case to case basis.
A court order that requires an individual or entity to perform or cease to do a particular act. The injunction is a command by the court that hopes to bring justice by prohibiting a specific action or order that it must be done. It ordinarily arises from a previous legal proceeding, which acts as temporary preservation of the status quo. The discretion of an injunction proceeding is at the mercy of the court. Knowing a few business legal terms may assist you in understanding the court case. A judge only provides an injunction if there may be irreparable damage to an individual’s rights.
An affidavit is a written statement voluntarily made under oath or administered by an authority who has the power to witness an oath. If you sign an affidavit, you attest that the statement written is true. You are under oath, only on paper. As a business owner, make sure to read through what you are attesting to. If you agree with all statements therein, then you can append your signature.
25. Tax Accountant
A tax accountant is an individual with the requisite skills and knowledge to establish and maintain financial records and tax filings. An accountant is majorly involved in bookkeeping and tax preparation. They may also provide tax advice to their clients. States regulate the professionals that join the industry through establishing a licensing system for accountants. A public accountant offers auditing services to their clients at a fee. A certified public accountant has a license in their state after passing competency examinations.
Entrepreneurs deal with a lot of legal paperwork and may need to have a firm understanding of the different business legal terms. Demystifying the legal jargon may make it easier for the business owner to negotiate and draft agreements. They can also work with product liability lawyers to ensure that they are protected against frivolous claims.