John D. Teter Law Offices



1361 South Winchester Boulevard, Suite 113
San Jose, CA 95128

What is Business Law

Posted on in Small Business Taxes

The term business law can be misunderstood. It leaves the impression that you could do a search in your local statutes and find a code with that term. If you did this, you'd be looking for a long time because there is no such thing as one body of business law. Instead, the term refers to the laws that apply to business. Notice the plural use of the word (laws).

Business law includes, in part, the following:

  • Contract Law
  • Partnership Law
  • Corporate Law (forming corporations)
  • Securities Law
  • Employment Law
  • Tax Law
  • Tort Law
  • Agency Law
  • Criminal Law (white-collar crime)
  • International Law
  • Construction Law
  • Environmental Law
  • Human Rights Law

What laws apply to your business will depend on the type of business you own. Some of these areas of the law can be complex and difficult to parse through. As a result, many owners and managers leap headlong into their activities without realizing that they are exposing themselves and the business to potential liability.


If you have a business-whether it's a single-member outfit you run out of your garage or a large organization with dozens or even hundreds of employees-you will eventually come to the question of whether you should form a business entity such as a corporation or LLC.

Doing business as a corporation or LLC makes sense for many reasons, not the least of which is the liability limitation that protects you as an individual from having to pay for any issues that arise out of the operation of the business. Still, when it's time to create a business entity, you will need to consider the various tax implications of each.

You should speak with an experienced attorney who knows tax law in order to fully understand the different types of tax exposure each entity can bring with it. For example, although operating as a corporation will protect you from being sued personally for the negligent acts of the corporation, doing so can expose you to double taxation: the profits of the corporation are taxed at the corporate rate, and then whatever pay you take out of the business is taxed at your personal income tax rate. On the other hand, if you operate the business as an LLC , the income of the business passes through to you and is only taxed once-at your personal income tax rate, which is typically far lower than the corporate income tax rate.


Contracts and other types of business agreements, when drafted thoughtfully and properly, are wonderful tools. In addition to stating in writing what services or products will be provided and at what cost, well-drafted contracts and agreements also describe additional terms including time frame for delivery, how the contract can be extended or terminated, and provide an outline of how, and under what laws, disputes will be handled .

If handled correctly, contracts and agreements are negotiated fairly and ultimately serve to protect the interests of both parties. Unfortunately, problems with contracts can arise for any number of reasons, including the following:

  • The contract might be "off the shelf" and not tailored for the transaction or type of business;
  • One party drafted the contract and the other party wasn't given an opportunity to review it before signing;
  • The agreement might not cover all of the products or services agreed upon by the parties;
  • The party who drafted the contract left certain sections blank, to be filled in after getting signatures

Problems can also stem from cancellation of an agreement. Depending on what type of services or products are going to be provided, California law may provide for cancellation periods if a buyer changes their mind about the agreement. If one party tries to exercise such a right, the other party is legally required to honor requests made in accordance with the law's requirements (in the time frame and manner provided by law).


As a small business owner, you are required to understand and adhere to the myriad of laws that affect your business, including both federal and state tax laws.

Even when you are confident that you are in compliance with all applicable regulations and requirements, finding out that your business is being audited is unnerving. Know that the fact your business was selected for an audit does not necessarily mean your filings have been flagged by the IRS, state or local tax authorities; you may have just won the tax audit random selection lottery (which is, unfortunately, not nearly as fun as winning the powerball.)

If you are selected for an audit, know that you have a number of rights during the audit process, including the right to professional and courteous treatment, the right to privacy and confidentiality, the right to know why certain information is requested, the right to appeal, and the right to representation.


When starting a new business, it is critical to understand the differences between different types of business structures and to evaluate the pros and cons of each option as they relate to your new venture. Business laws govern both the formation and operation of all types of business, and contain very specific requirements that can be traps for the unwary.

What might be an appropriate choice of entity for one type of business may not meet the needs of another. Unfortunately, making an incorrect choice of business entity not only creates administrative burdens to "unwind" the first choice, but it also usually results in unnecessary expenses at a time when the new business needs every dollar working for it.

There are also differences in the type of supporting documents a business must have behind the scenes, and in the legal formalities that must be observed on an ongoing basis. For example, a single-member LLC usually does not need to observe the same types of formalities as a corporate entity, which must hold and document regular meetings of shareholders and directors. Where a single-member LLC may not need an operating agreement or a member control agreement, those types of documents are very important for a multi-member LLC.

BBB ABA State bar of california SCCBA MH 2016
Back to Top