Business Law Has a Great Bearing on the Success of a Business - Essay Example

Business law has a great bearing on the success of a business. These laws are mechanisms that have been put in place to oversee a conducive business environment. The basics of fundamental business laws that apply in a business setup include contract law, property rights, land rights, land titling system, intellectual property rights, company law, collateral law, and insolvency law (Cheesman, 2009).

Note, however, that the arbitration system and enforcement capacities also have a role to play as far as business law is concerned. Under this sphere are the commercial courts and the specialized economic courts. They come in when transactions between parties are not honored. Further, company law largely interprets business law to the affected parties. Business just like any other discipline, which involves interaction between two or more parties, cannot be wholly exonerated from instances of conflicts (Emerson, 2009).

Business law attempts to address diverse issues in a business. It enables swift and efficient enforcement of contracts. In addition, it ensures adequate legal protection for both private and personal property; it ensures a clear framework and mechanisms for transferring and registering property. Furthermore, it also sees to it that intellectual property gets due protection and enforcement. Business law ensures stability and the existence of a framework able to accommodate the management, operations, and establishment of companies.

Company law puts in place a legal framework for how companies operate. It handles issues such as company formation, and regulations in terms of limiting the liability of members, and the general company’s functions and performance. Company law protects both investors and the public in their daily business transactions. Investment law offers grants to some businesses irrespective of their legal form. It also contains regulations concerning the transfer of shares in the Capital market. The company law foresees functions and the capacity of an individual since this is very essential during company formation (Kenneth & Clarkson, 2010).

Corporate personality implies that as far as the company law is concerned, the personality of a company exists differently from its owners. Therefore, the state recognizes that certain businesses or firms contain legal personality. As a result, the company has the legal right to sue an individual or be sued for its property, or name or be held accountable for its debts. It is this idea that allows limited liability for company shareholders to take place because the debt does not belong to them but to the company. Limited liability is the rational aftermath of the existence of a separate or dual personality. However, just like people in some cases can have limits placed on their legal personality, a firm or an organization can have legal personality with no restricted liability if that is the way it is granted by the law. Therefore, it is vital to note that a firm can be formed with no restrictions or in absence of limited liability.

The rationale of the ideas of corporate personality and limited liability was well presented in the case of Salomon v Salomon & Co. Ltd in the year 1897. In this case, Salomon conducted his business as a leather trader. In the year 1892, he formed his firm or company which he called Salomon& Co. Ltd. Salomon, his five children, and his wife each had one share in the newly formed company (Hannigan, 2009). Therefore, the family members were forced to hold shares on behalf of Salomon because the policy at that time required that for any company to be registered there must be at least seven shareholders. The Company bought the sole operation of a leather business, which was valued at E 39,000.00. This showed Salomon's determination to succeed in the leather business. Salomon paid E 10,000.00 in form of debentures for the assets of the company. He decided to pay in debentures so that he could be a secured creditor. Salomon offered a charge over the assets of the company at E 20,000.00 in E 1 per share and E 9,000 in cash. In this manner, Salomon’s liability for business debts had transformed from sole trader or unlimited liability to a shareholder in the company or limited liability.

 Salomon was not accountable for the company’s debts. In addition, as the company’s manager, he conferred himself a secured charge over the assets that belonged to the company. Hence, if the company collapsed, Salomon would have no liability for the company’s misfortunes and debts, and he would demand the company’s assets that were left as a means of paying off the debts of the company to him. Unfortunately, the leather business filed and Salomon was forced to sell his debentures in an attempt to rescue the business from the brink of collapse. This measure did not work as the firm was declared an insolvent liquidation. The liquidator who argued on behalf of unsecured creditors claimed that the firm was nothing but a sham and that Salomon was to be held accountable or liable for what happened to the company.

People are encouraged to form private firms because they want to avoid bankruptcy (Miller & Frank, 2008). Read More