Business Law

Business law has two main functions:

  1. Lubrication Function: it makes the process of business between parties simpler. it helps people in the transactions. the law supports the parties of a legal relationship, whenever the relationship between them became sour. Law helps transactions to be done with lower frictions, headaches, and challenges.
  2. Allocation Function: it helps them to know what are their rights and obligations? for example, if you buy a bottle of wine in a shop and it drops in the shop before you pay for it, should you pay for it or not. here the allocation function of the law is defining the rules.

there are two theorems in Business Law:

  1. Hobbes Theorem: people being bad and we should control them in order to be able to live without any problem. it sees only punishment.
  2. Coase theorem: it says that people are in general good. their natural tendency is honesty. the law is to make the starting point of transactions lower and law is a framework that helps people to sort out their problems together. the law is ready to help you. in this case, the law reduces the cost of transactions.

the sources of business law:

  1. international treaties
  2. constitutions
  3. statues
  4. model/uniform law:
  5. judicial decisions
  6. lex mercatoria (Law of traders, mainly related to the customs.): in order for a trade to take place, we have to consider the fact that the minimum knowledge of the other parties' regulation and laws of customs are needed. there are some examples:

6.1. Why should we use invoices? in many national contexts, there are no indications that how should the invoice look like? invoice is such an old instrument that is a result of repeated practice. the format of that in most of the companies is the same because it is a custom. it is not a matter of an agreement, but that is accepted by people.

6.2. Buying Herim: traditionally herim was traded in barrel and it is in the same format even now.

  • the only thing about Lex Mercatoria, is that it should be a live custom. Desuetudo means that the custom is not accepted anymore, and the custom can not be a source of law.

the law is applicable to the party that makes more effort. for example, if the buyer is paying and waiting for goods, and on the other side, the seller is preparing the goods, transferring the goods, and …. then the seller law should be applied.

Lex Mercatoria, is quite important in all business settings. when somebody asks an oil exporter what is the cost, and gets the answer of 50, he knows that it is meant USD. although other units can be used, the base is always USD.

the next topic of importance is the common law/ equity vs. continental law system. in these two we have three major points of difference:

  • different concepts of the source of law
  • different functions of judicial decision
  • different origin and role of statutory law

As lawyers know, legal systems in countries around the world generally fall into one of two main categories: common/ equity law systems and continental or civil law systems. There are roughly 150 countries that have what can be described as primarily civil law systems, whereas there are about 80 common law countries.

The main difference between the two systems is that in common law countries, case law — in the form of published judicial opinions — is of primary importance, whereas in civil law systems, codified statutes predominate. But these divisions are not as clear-cut as they might seem. In fact, many countries use a mix of features from common and civil law systems. Understanding the differences between these systems first requires an understanding of their historical underpinnings.

Basic Structure:

Private law: whenever we operate in a business, which is made horizontally ( all people are equal), we deal with the private law.

Public Law: when you do business that deals with the party which is having a vertical position compared to you, you are dealing with public law.

Public Law can have an effect on private law. like the regulations about the minimum wage that is applied by the governments. it affects the private law-based contract of companies and their staff.

Subjects and divisions of subject matters within BL are highly conventional. e.g. Francovich case: this is regarding the contractual parties in the context of a contract. the employee is the buyer of the time of the employee. in this case, we deal with the lack of implementation of the directive by national authorities. the court of Europe orders that the case should be in favor of Francovich, and the governing party is responsible for compensation.

Faccini Dori case. it led to the directive that made the counties in the EU have a directive in support of the buyers. if you buy a thing from a distance, you are allowed to return the good and reclaim the money paid. ms. Facchini gets down in the train station and in the train station, a marketer sells her a service of language learning and signs with her in the spot the contract. the problem arises when she arrives home and checks the schedule of the classes. the classes were not in accordance with her schedule, so she calls the company and requested a refund. the company does not agree to return the value, according to a clause that mentions that the payment for the whole class is nonrefundable. she goes to the court in Milan, the court can not find any problem unless there was a directive implemented directly. but the result of the request from the court of the Europe could not enter the case as the case was a horizontal case.

Why we have the Business Law:

  1. Business law provides order/basic security in a business relationship
  2. To balance divergent interests of stakeholder
  3. To provide protection to the most vulnerable

Who are the actors of the business law?

  1. natural persons
  2. transactors
  3. consumers
  4. business people
  5. plaintiffs/ defendants

Ivenell v. Schab Case ( 1981 ECR 133): The law doesnot follow the name that we put for ourselves in the contract

Mr. Ivenell was the agent of Schab company for penetrating the french speaking market. according to the agreement, Mr. ivenell was a dependent contractor, however, all the activities of Mr. Ivenell was supposed to be reported weekly. when Mr. Ivenell is sure about the agreement with a prospect, he is supposed to make the contract based on the catalog of Schab. Ivenell after two years was released by Schab. Ivenell, recalculated his commission and mentioned that the amount of the payment was lower than what he should have earned. the case goes to court and then very interesting process starts.

Court asks Ivenelle, about the relationship with Schab. the court mentions that the claim is wrongly formulated. however, the court believes that the agreement type is not of agency agreement nature. the court believes that it is in an employment agreement. because there was a specific job, in which Ivenelle was selling his time to Schab. this led to a win more than what he had expected.

  1. Sole proprietors business:
  • profit distribution; is according to the stipulation done on the contract. if it is not clear, then the profit is distributed equally.
  • the liability for the debt is unlimited.
  • Continues till the time that you are alive.

2. Partnership:

Joining our resources by virtue an agreement an agreeing upon puting our force to develop our business. one partner is responsible with the other persons responsibility.

Liability for any debt is unlimited. the debt should be paid by the private sources of the owners.

Profit distribution:

problem of Continuity: in most of the legal system, this type of agreement is mostly based on the bonds between the people. if some one wants to discontinue or dies, then the partnership will not be continued.

3. Limited Partnership:

it brings in a sort of flexibility in partnership. it is not only a matter of civil court laws, but different type of liabilities. the liability here is just limited upto the assets that are related to the business and not the private matterials or owings of the owners. there is a model that can be a passive cooperation and partnership, like the case that the money comes from one side and the work is by another one. you may have a passive partnership, in which you create. in this agreement, you create an agreement in which the agreement should be registered in court. it is somehow special, as it deals with different types of liabilities, between two people or more in a partnership.

General Partner: bears the unlimited liability

Limited Partner: Bears Limited Liability

When the Limited Partnership is used?

there are different reasons that why the people accept to have limited partnership agreement.

  1. Due to contractual obligations with the other party
  2. Due to the obligations by the government. for example in Poland, lawyers are allowed to have one of the following structures of business. which are, Sole Proprietorship, Partnership, or limited partnership. in a limited partnership, one lawyer can be the limited partner and bring in the money needed for the business, while the other parties can be a general partners.

Note: If you want to set up a bank in any European company you have to make it a joint-stock company.

Limited Liability Partnership:

Partners liability for one partner’s professional malpractice is limited to the extent of the partnership assets.

no unlimited liability of the partners.

the limited liability company bears unlimited liability, but the shareholders in it are not bearing the liability.


in this model, the following are considered,

controlled by the shareholders or stockholders. some times because of a high number of stockholders, they make the supervisory committee.

they have better access to capital. there are separate actors in the world of business.

the problem is the following point:

  1. mainly if the retained earning, there is a chance of double taxation. there are two types C Subchapter and S subchapter. the C is regualar one. the S subchapter, should not have more than 20 million turnovers, and not more than 10 shareholders. however, right now the 20 and 10 became 100 and 100.
  2. there is another subchapter related to the corporations in the creation stage, or “Corporation in statu nascendi”.

A question of recognition and continuity ( European view)

if you are a citizen or registered company in any state in Europe.

Centros case: to register a branch company in Denmark

the registration initial capital is around 20,000 Euro. so they registered a company in the UK, and then immediately they registered their selves in Denmark. the European court accepted that his case is okay and the initial capital for registering that is with lower costs according to the subsidiary or branch setup.

Daily mail case: Right of establishment and tax regulations.

it is a UK newspaper, and managers of this company were looking for a tax reduction and to continue their legal existence. they were looking for another company to be able to invest in. the only jurisdiction which was appropriate for them was the Netherlands. the dutch were very inviting, but the UK needed tax residency of the company in the UK. the daily mail made a plaintiff into the court of EU. they claimed that the right of establishment. the result was that the country is allowed to support its country’s tax protection.

Uberseering Case: Right of establishment

for the foreign companies to register themselves in Germany, it is possible. but some of the high-rank managers should be german. court of EU decided that this is

Inspire Art Case

You can have whatever directors that you can have, but they have to be able to speak in germany. but again this was not in line with right of stablishment?

Ritchie v. Yurko Case:

it is a house, with a lottery shop below the house. there was a party in the first floor of the building. one of the party participants had the idea to collect the money from everyone in the party and buy the lottery. the persons buys the ticket. one of the lottery tickets won 100,000 USD. the problem arises when one of the by collecting this pool of money, including what she says that she made a partnership agreement, as a result of an oral statement. so the award is a source of fund that comes to the partnership and gets divided equally in the participants of the party.

other business groupings:

tacit partnership: situation at which at least one member wants to be secret and his name does not appear in the contracts or any public document. this person, however, is liable like other members.

Joint venture or strategic alliance: this happens when two different entities cooperate together. this may happen to be between competitors as well. in the airline companies, there is another different way. like sharing the flight's information between each other, in order to provide a better experience for their travelers. or using the Hubs of each other.

Grouping of economic interests: it is a loose form of structure. but in EU you have to mention the main subject of your activity.

Cooperatives: it is a sort of operative body for the people who are not wealthy. they make a common purpose and work together on major cooperation. like the buying cooperatives by farmers in Scandinavia, is normally formed by the traders of tractors. they make a cooperative structure and order for tractors, or … together. this way they receive a lower price.

Trust: it is typical for common law countries. it is a separate corporation, in order to acquire some assets and manage the assets through some instructions.

Patent agreement: it is based on the hobbs agreements. when we look at the coase together, the patent agreement is supported by law, for the disposal of the knowledge gained.

Patenet, Copy right and Trade Marks:

Patenet is recignized as a species of property and has many similarities to the personal property. like, it can be sold and passed to the heirs of inventors. most patents are valid for 20 years, but it is possible to extend the term. the first patent was in 15th century, and it was giving a monopoly for transfer of marbels. there are some similarities between the patent, copyright and trade marks.

trademarks are legal protections on words, phrases, or designs that identify specific products or services. trademarks are intellectual properties that contribute to the image and reputation of the products. they are valid for ever, as long as it is used.

Copyrights, are legal protection, on creative works of the mind. software, visual arts, … it prevents others from reproducing. it is granted to a max of 70 years from the pass away of authors.

patents concern mostly of physical inventions and are usually in a shorter period. there are three types of patents:

  1. Patents of utility ( patents of innovation): like machines, articles of manufactures, processes and software, the composition of matters (in pharmaceutical)
  2. Design patent: it protects the visual qualities of a manufactured item. icons and emojis, designs of items.
  3. Plant patent: a form of protection of unique plants (vegetables it means).

Post Grant Opposition starts once the patent is granted. Once the fact that a patent has been granted is published, an opposition may be filed with evidence within a certain time period prescribed in the applicable law.

Difference types of conflict resolution:

Essentially, litigation means taking a dispute to court. Both sides present their case before a judge or jury, who will then render a decision. Arbitration, on the other hand, is a private process in which both parties agree that an arbitrator (a neutral third party) will render a binding decision.

Mediation is the process of resolving issues between party where a third party assist them in resolving a dispute, while in the conciliation method in which an expert is appointed to settle the dispute between the parties. … But in conciliation, there is a settlement agreement between the party.




An Enthusiast Equity Analyst and Independent Financial Researcher with a passion for Fundamental Analysis. I use Medium for the daily records.

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Iman Najafi

Iman Najafi

An Enthusiast Equity Analyst and Independent Financial Researcher with a passion for Fundamental Analysis. I use Medium for the daily records.

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