Business Laws

What It Means

Business laws (also referred to as commercial laws) are the laws that determine, govern, and regulate business practices. They can be categorized as private laws (laws or statutes that regulate interactions between individuals or other private entities, such as companies) or public laws (statutes that govern relationships between private entities and the government). Business laws apply to a wide range of commercial activities, from the drafting of business contracts (written agreements concerning trade, labor, or some other aspect of a commercial transaction) to the disposal of industrial waste.

There are several types of business law, each designed to address a specific aspect of commercial activities. In the United States some business laws (such as the Federal Trade Commission Act of 1914) are designed to ensure that all companies comply with business practices that foster and promote competition. Other laws (for example, the Occupational Health and Safety Act of 1970, commonly known as OSHA) mandate that businesses maintain a safe working environment for its employees.

In the United States the passage and enforcement of business laws are the responsibility of both individual state governments and the U.S. Congress. State business laws typically establish guidelines for a range of issues, including consumer protection rights (for example, safeguarding consumers against business fraud), commercial contracts, and bank lending practices. On the federal level the U.S. Congress is primarily responsible for enacting and enforcing laws that apply to intrastate commerce (in other words business transactions that occur between two or more states). The Uniform Commercial Code (UCC) is a set of regulations designed to create uniform standards for business practices in all 50 U.S. states. The first state to enact the UCC was Pennsylvania, in 1954; by the early 1970s the UCC had become law in all 50 states. In cases where there is a discrepancy between a state and a federal law, the federal law will almost always take precedence.

The Federal Trade Commission (FTC), a government agency founded in 1914 as a provision of the Federal Trade Commission Act, is also involved with ensuring that businesses comply with laws and regulations relating to competitive practices, consumer rights, and other issues relating to the promotion of fairness and honesty in business transactions.

When Did It Begin

Laws governing business transactions have been traced to the earliest human civilizations. Archaeological evidence has revealed that standardized codes of commercial conduct existed in ancient Egypt and Babylonia (a city-state located in what is now Iraq). The Hammurabi Code, a system of laws created by the Babylonian king Hammurabi in the eighteenth century bc , includes a number of regulations relating to business transactions, including rules governing contracts between merchants and fair wages for manual laborers. The Bible contains numerous references to laws governing business practices, notably rules governing the charging of interest on loans. In most cases business regulations in the ancient world were enforced by merchants themselves and generally remained outside the jurisdiction of civil courts (the branch of government responsible for interpreting and enforcing laws). This practice changed in the Roman Empire, when business laws became incorporated into the broader legal system.

With the destruction of the Roman Empire by barbarian hordes during the fifth century ad , many of Europe’s long-standing commercial networks were left in ruins, and business transactions fell into a state of near anarchy. Over the next several hundred years more and more established trade routes began to form between cities throughout Europe, and merchants once again began to draw up codes regulating business practices. In the early Renaissance (a period of cultural rebirth in Europe beginning in the fourteenth century and continuing into the seventeenth century) wealthy merchants in Italy and France enjoyed significant political power and often played a key role in drafting legislation relating to commerce. Throughout the Renaissance business laws in Europe were adjudicated by commercial (rather than civil) courts and were enacted and enforced according to rules established by the merchant class. This system of rules and procedures, created and overseen by merchants and lying outside the jurisdiction of the civil legal system, came to be known as the Lex Mercatoria, or “Law Merchant.”

In the seventeenth century the royal court in England expanded its powers to include cases involving business disputes. By the late eighteenth century the Law Merchant had become incorporated into English common law (laws that emerge as a result of judicial decisions, and the precedents established by those decisions, rather than as a codified system of laws). This integration of business and civil law became the basis of the American legal system after the United States won its independence from Great Britain in 1781.

More Detailed Information

Throughout history business laws have been established to address specific issues of problems related to commercial activities. Traditionally business laws were created by the merchant class and were designed to ensure that commercial transactions took place under conditions that were fair and safe for the merchants involved. At the same time, special courts were established to mediate and resolve disputes. In medieval Europe (or the Middle Ages, from about 500 to about 1500) merchants and traders working in a particular region would frequently organize into groups, with the aim of securing their mutual financial interests against hostile forces, such as pirates or foreign armies. One of the most famous of these organizations was the Hanseatic League, a confederation of commercial towns in northern Germany and other parts of Europe. Formed in the mid-thirteenth century, the Hanseatic League emerged at a time when Germany lacked a central government; it was designed to protect the interests of German merchants in the absence of a unified legal system. At its height the Hanseatic League regulated trading practices over a wide swath of northern Europe, extending all the way from London, England, to Novgorod, Russia.

With the rise of democracy in the eighteenth and nineteenth centuries, the role of merchants in the formation of business laws diminished considerably, as elected governments assumed responsibility for regulating commercial activities. As governments became involved in enacting commercial legislation, the rights of consumers became a more significant factor in the crafting of business laws. In the United States the federal government began to play an active role in determining economic regulations in the decades following the Civil War. A number of these laws, notably the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914, were aimed at preventing corporations from engaging in monopolistic practices (business practices aimed at unfairly limiting or eliminating competition in certain sectors of the economy, allowing companies to maximize earnings at the expense of other companies as well as consumers). Other laws were aimed at protecting consumers from unfair or unsafe business policies. One of the earliest, and most important, consumer protection laws was the Pure Food and Drug Act of 1906. This act was the first law to require producers of foodstuffs and medications to provide consumers with complete and accurate information concerning the ingredients of their products. The law also gave the federal government the right to inspect food-production processes, notably those involving meat, to ensure that food products were being prepared under sanitary conditions. This trend toward increased government regulation of business activities in the United States would predominate throughout most of the twentieth century.

Recent Trends

In the 1970s many politicians and economic thinkers began to question the efficacy of government regulation. For one they believed that government involvement in business activities inhibited economic growth by burdening companies with the responsibility of abiding by excessive regulation. At the same time, these opponents of regulation believed that the government’s dedication to regulatory activities was overly costly; in order to finance these activities, high taxes were imposed on American individuals and businesses, which further compounded the economic woes of many companies. By the late 1970s the U.S. Congress began to pass laws designed to deregulate (in other words remove regulations) certain industries. One of the first major acts of deregulation was the Airline Deregulation Act of 1978, which eliminated government involvement in determining airline activities and fare prices, thereby allowing the airlines to compete with each other more freely. Over the next two decades a number of other significant acts of deregulation followed. This general trend toward deregulation on the federal level paved the way for state governments to deregulate their energy utilities in the 1990s, subsequently creating regional competition in the power generation industry.