Legal System Allows for Business Entities
How the legal system gives rise to busienss entities.
Written by Jason Gordon
Updated at April 2nd, 2023
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
How is the law applicable to business entities?
Business entities exist pursuant to state laws recognizing their existence.
Further, businesses are subject to and must comply with both federal, state, and local laws in the same way as individuals.
Back to: INTRODUCTION TO LAW Next Chapter: CONSTITUTIONAL LAW
What effect does the legal recognition of business entities have on the conduct of business?
Business entities are efficient mechanisms through which to carry on business. They allow for greater economic productivity and this provides an overall benefit to society.
The business entity is generally considered to be a separate being from its owners or employees. The concept is commonly known as
"corporate personhood".
Businesses have rights similar to those of individuals that cannot be infringed. Likewise, businesses cannot infringe upon the rights of others without facing criminal or civil liability.
A business acts through its agents (owners, directors, employees, etc.) and can enforce its rights or be found liable or guilty in civil or criminal proceedings.
Because of the unique nature of business entities, the government undertakes considerable efforts to prevent the use of business entities to harm individuals.
Much of the material covered in this text focuses on the laws and regulations that the government uses to control the activity of businesses and the individuals associated with those businesses.
Discussion Question
What rights do businesses have that are similar to those of humans? What are some of the laws that just apply to businesses? How can business entities cause harm to the economy? What role did businesses have in the financial collapse of 2008? What role did individuals have in the collapse?
- In business law, corporations or businesses have the same rights as people, and their entities are considered to be separate from those of the owners. It means that businesses can enter into contracts with individuals and other businesses on their own. Corporations are explicitly protected by the 1st, 5th, and 14th amendments. Just as humans, corporations have rights to free speech. The 5th amendment protects businesses from nationalizing of their property by the government. While some rights such as those of owning property and free speech cut apply to both businesses and humans, some laws only apply to businesses. Laws such as employment laws are meant to regulate businesses. For long, economies have continued to rely on tax from businesses and their employees for sustenance. Businesses in real estate and banks played a huge part in the 2008 financial crisis, as well as individuals, who would take loans for 100% of their new homes value. Whenever businesses and banks allow excessive credit to individuals, there is always the danger of an economic crisis.
Related Concepts
- Understanding Law
- What is "Law"?
- Economic Strength of a Nation?
- Capitalism vs Communism
- What is the "Rule of Law"?
- What is "property law" or "property rights?
- What is "ownership"?
- Why recognize property rights?
- How the law protects property rights?
- What are the "common law" and "civil law" systems?
- What is "public law" and "private law"?
- What is "civil law" and "criminal law"?
- What is "substantive law" and "procedural law"?
- Sources of state and federal law?
- United States Code of Laws
- Role of Judiciary in the legal system?
- Business activity and legal entities?
