Business Labour Law

10-02-2021

Business Law : Lesson one INTRODUCTION TO BUSINESS LAW

OBJECTIVES

- The first module of the course “Business and Labour Law” is designed to provide you a knowledge about the core aspects of the business

law, with special reference to the various forms of business organizations and their regulations (both at national and EU levels)

A common international system of law does not exist

‣ For this reason we aim at studying the international aspects from each single European country law

• International law is represented by the laws and regulations of each European country law (each Nation)

• Regulations and directives : most important

✦

- Main topics :

1. The entrepreneur and the discipline of his business activity;

2. The company law

Company rules = rules applied to organization

•

- You will be provided with an in-depth description of the main legal factors

Affecting business, the forms of its organization and the management of enterprises

‣

SPECIFIC ARGUMENTS

- Topics relevant to business activities regulation:

1. Formation of a company,

Company means corporation, partnership...

•

2. Corporate governance,

Rules applied to company

•

3. Rules applied to finance and accounts of the business,

4. Capital markets and takeover regulation,

5. Merger and division of economic legal entities;

- Studied at international level

LEARNING OUTCOMES

Knowledge and understanding :

1. Acquire the knowledge of the system of normative sources, at both national and EU levels, and shall even understand the main issues of

‣ the business law systems.

There are different levels of law : National & International

• And different systems of laws

✦

Applied skills of knowledge and understanding :

2. Acquire the ability to apply principles and to analyze the principal controversial aspects of entrepreneurial and company law, also

‣ through the analysis of rules and case law

There is not a unique system of laws

•

Evaluation :

3. Develop your analysis and judgement skills on entrepreneurial and company law, with regard to the ratio and to the interests that are

‣ brought into consideration by the law.

Law is a solution to business conflicts

•

Communication skills :

4. Acquire the ability to use the lexicon of business law in speaking and writing expressions.

‣

Learning skills :

5. Develop your learning skills for the prosecution of your graduate formation, by developing your individual study and self-evaluation

‣ skills Business law is seen as a solution to an economic problem

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EUROPEAN UNION

SOME NOTIONS

Treaties & legal aspects

- There are some international system such as the European Union which was born as an organisation of markets: is based on business law

- The European Union is an organization that has a legal personality and its own legal order, which is separate from international law.

Legal person is an organization that can act, which has duties and rights as an human being (≠ from a natural person)

‣ Organizations have rights and duties : are considered as a collection of different persons and have the possibility to act

• Corporations are considered by law as legal persons (fictio juris)

✦

Not all natural person have right and duties

•

Has a legal order which means that it has its own system of law separated from the National ones (Italy is a legal order : can create law)

‣ Can create new laws that can directly or indirectly affect not only the European laws, but also each single member state’s laws

• Has a direct or indirect power to impose laws to each member state

✦

- European Union law has direct or indirect effect on the laws of its Member States and becomes part of the legal system of each Member

State.

- The European Union is a source of law by itself :

Treaty on European Union (TEU),

‣ Treaty on the Functioning of the European Union (TFEU)

‣ International treaties are signed by the Parliament of each member state; allow European laws to be imposed in each country

- Are considered the constitution of the European Union

And their protocols

‣

- European business law is important in order to allow the creation a common market (important to understand internal laws)

EU is seen as a sort of light house (an ideal regulation system) for the non-EU countries

‣

- There is a possibility of having contrasting laws which is solved by the treaties

European laws are more important than National ones : the one applied is always the European one

‣

Organs

- The main organs of European Union are:

The European Parliament : primarily legislative functions; creates law

‣ Regulations : directly applied to all single states

• Directives : contains some principles which can be applied, they require the countries to create new laws

•

The European Commission : executive branch, that implements Decisions and upholds EU treaties

‣ Commissions : implements decisions and treaties, can also propose directives an regulations (law making)

• Decisions not generally applicable but individually

✦

The European Council : has no legislative power, but it provides the EU with general political directions and priorities

‣ Formed by the prime ministers of the single member state (most political organ)

•

- The judiciary functions are absolved by : [2 levels of judgment]

1. The General Court (a.k.a. the Court of First Instance) : which hears applications for annulment; from individuals, companies and

national governments

2. The European Court of Justice (ECJ) : which hears applications from national courts for preliminary rulings, annulment and appeals

Many decision of the EC have been taken as guide from other non European countries (ex. antitrust)

•

- Are important in order to apply the European law to the single country

Inner European legislation

- The different kind of laws that can be adopted in the European Union

Regulations: of general application and binding in their entirety, they are directly applicable, without need to be transposed into

‣ national laws, and they supersede incompatible national laws with their substantive provisions

Parliament, Commission

•

Directives: binding upon any or all of the member States to whom they are addressed, but leave the choice of form and methods of their

‣ implementation to the national authorities , (in general) not directly applicable (each country can decide how to transpose them)

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Parliament, Commission

•

- Decisions: binding in their entirety only on the member State, natural or legal persons to whom they are addressed

Commission, Council

‣

- Recommendations and opinions: do not confer any rights or obligations, but may provide guidance as to the interpretation and content of

EU law

Commission, Council

‣ BUSINESS LAW

There is not a general rule

- The body of rules that dictate how to form and run a business

- Includes all the laws that govern how to start, buy, manage and close or sell any type of business

Entrepreneurial law, company /corporation law, financial markets law, etc.

‣

- In a broader view : establishes also the rules that all businesses must (or should...) follow (competition law, intellectual property law,

environmental law, labour law, etc.)

DEFINITION OF BUSINESS

What is a business activity?

- Analyse these hypothesis:

1. Tim lacks a pen; his schoolmate Tom lends him one for free.

First of all, lending for free reminds “charity” : it cannot be considered as a business activity not because there is no profit/gain but

• because it is not an economic activity.

An economic activity is defined as an activity which is balancing the costs and the gains.

• For instance a foundation (which offers goods or services for a price which is equivalent to the cost of production)

✦

2. Tim still lacks a pen; Tom sells him one for € 1, that is the price Tom has paid for the pen.

There is an economic aspect but it is a single operation, not an activity, which requires a system of interconnected acts or complex

• acts Consequently it is not an economic activity

✦

3. Tim still lacks a pen; Tom – that is quite angry about Tim’s attitude – sells him a new one for € 2.

4. Everyone at school knows that Tom has always a pen to lend. Tom buys a stock of 100 pens for a price of € 50 and then he resells them

for a price of € 50 cents each.

5. Tom is exhausted for the never-ending requests of pens: he decides to resells them for a price of € 2 each.

Both 4 and 5 are economic activities because of the reselling of pens.

‣ The 4 case does not seek a profit whereas the 5 case is (as in many other cases) profit-oriented;

th th

‣ If I receive something for free and give it to someone else for free: it is no more an economic activity

•

When does Tom start to make a business? Is just one operation? Or is business necessarily an activity? Does business require an initial

- investment? Does business require a plurality of organised workers? Does business require a gain?

- A business activity normally does not require necessary a profit

But an economic activity : an activity that balances costs and gains that is not always profit-oriented

‣ Normally an activity has more than one interrelated acts or a complex one

‣

Conclusions

- It doesn’t exist a supranational legal definition of business

There are some definitions in some national laws, but not always

‣ Example : in Italy doesn’t exist

•

- However, we can imagine that business:

Is an economic operation : that is an operation oriented to balance costs and gains

‣ Example : Also foundations can make business

•

Is a continuous activity or also a single, complex operation

‣ Example : A stationery shop that sells pen day by day or a company created just to build a single skyscraper

•

Can involve a single person or many people

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Example : Workers, directors, etc.

•

Requires an investment of money or goods or services

‣ A single worker doesn’t make business

• Initially an investment of capital is required to start running a business

•

It doesn’t require a gain

‣

Kinds and aspects of businesses and laws

- Legal systems prefer to define who runs a business activity, or to regulate some problematic aspects of running a business

For example, company law establishes the rules of all business activities run by companies; antitrust law contains all the rules to assure

‣ that businesses are run in a competition regime, etc.

- Companies are creatures of the law: enterprises of persons and assets organised by rules (in some Countries company law is a synonym of

corporate law, even if a corporation is a legal fiction that differs from a company)

4 - 4 {chapter }

Legal business entities : Lesson 2 DEFINITIONS

LEGAL TERMS

Entrepreneur

- Entrepreneur : a single individual who founds and runs a (normally small, but also complex) business and assumes all the risks and rewards

of the venture.

A business activity does not have a limitation of responsibility

‣

- The job of the entrepreneur isn’t risk free :

Commercial risk, Financial risk, etc.

‣

- The entrepreneur normally needs:

A marketable idea for new products or services to offer to the market;

‣ Personal savings as capital, or some investors funding his business idea (banks, investment funds, etc.);

‣ People (workers, directors, etc.) and resources (a shop, an IT infrastructure, etc.) to manage the business

‣

Firm

- Firm : a form of business organisation that sells or distributes goods or services.

The term firm is often associated with business organisations that practice law (particularly those involving hundreds of attorneys), but

‣ the term can be used for various business operation units, and is normally interchangeably with “business”, “undertaking”, and

“enterprise”.

A single firm can consist of one or more establishments, as long as they fall under the same ownership and use the same commercial

‣ name

Example : Amazon Inc. has many factories and offices across the U.S., but it’s just one firm

•

Company

- Company : an enterprise formed by persons and assets, that are organised by rules and they are finalized to produce or distribute goods or

services.

These rules are determined by:

‣ Law

• Contracts or other forms of agreements

• Statute of the company

✦

Unilateral actions of corporate organs or officials

• Market forces

• Particularly important as they are an external influence of the company

✦

- Companies (legal personality, act as human being with rights/duties) are creatures of the law : each form has its own liabilities and benefits

THE FORM

The choice of the form of business activity

- Business activity produce liabilities : when asking to a bank to credit an initial investment, the entrepreneurI becomes a debtor

The bank will act on a part of his patrimony

‣

Sole Trader/Entrepreneur

- Sole Trader/Entrepreneur : the natural person that sets up and runs the business

Illimited risks and benefits

‣ He suffers unlimited risks (risk to lose his patrimony), but he could have also all the business/gains

• Not recognised as a legal person but as a natural person who runs a business activity

•

Partnership

- Partnership : an association of natural persons that provides an initial capital, sets up and manages the business together

Illimited risks and shared benefits

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Limited Liability Company/ Corporation

- Limited Liability Company/ Corporation : an association of natural persons that is «legal person», for instance a legal fiction that sets up and

manages the business with its own patrimony : the natural persons are not personally liable for the company's debts or liabilities

Limited risks and shared benefits

‣ The only form of business activity recognised as a legal personality

‣

HISTORY

The East Indian Companies

- The first corporation in the history was the British East Indian Company : it received a royal Charter from Queen Elizabeth I on 31st

December 1600.

- The second corporation was the Dutch East Indian Company, founded in 1602: it introduced the first permanent joint stock exchange from

1612, where its shares could be traded everyday.

- They were created for the commerce to Asia and they had a legal personality: they had their own armies and fleets and they ruled directly on

vast territories of India and Far East.

PRIVATE VS. PUBLIC COMPANIES

A private company A public company:

- The firm is held under private ownership. - The company has issued securities through an initial public

offering, and is traded on at least one stock exchange or in over-

- The company may issue stock and have shareholders, but their the-counter markets

shares are not issued through an initial public offering and aren’t

traded on public exchanges. Example : NYSE, NASDAQ

‣

More difficult to determine because we are not in a “real - Becoming a public company allows the market to determine the

‣ market” value of the entire company through daily trading

- The shares of these businesses are less liquid, and their price is

more difficult to determine.

FOR PROFIT VS. NOT FOR PROFIT ORGANISATIONS

For profit Non for profit

the entity aims to get a profit (egoistic purposes) the entity aims not to get a profit (altruistic purposes)

- -

- At the end of the financial year, the profit (or part of it) is - At the end of the financial year, the profit is not distributed

distributed among the owners of the business : among the owners, but is used for the objective of the

organisations

Sole traders; partnerships; corporations; cooperatives.

‣

THE SIZE OF THE ENTERPRISES

- The EU recommendation 2003/361 defines the Small and Medium-sized Enterprises (SMEs). In EU 99% of enterprises are SMES (often

family-based business).

THE DIFFERENT INTERESTS CONVERGING ON A BUSINESS ACTIVITY

- The forms a business activity can assume underline the several, different interests gravening on the enterprise.

- Typical conflicts are:

Owners vs. Creditors;

‣ vs. Employees;

• vs. External Investors;

• vs. Managers;

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vs. Consumers;

• vs. Public Authority, etc.

•

- There are many different conflicts depending on the business and interests

Analysing these conflicts is essential to understand business law (golden rule!)

- The law is a way to solve these conflicts

- A typical conflicts can happen when a single entrepreneur want to invest all the credit he received from the bank in a risky business to get

more profit

Examples

A controlling shareholder wants to invest the annual gains in developing business activity; the other shareholders want to get them

1. distributed.

Conflict typical of private companies when there is a controlling shareholder and another minority shareholders

‣

An entrepreneur wants to reduce its activities by selling part of the firm; the banks financing him are opposing this decision.

2. Conflict between the owner and the creditor, the type of business organisation is a single person : an entrepreneur

‣

The management of a corporation wants to develop a new risky business; the shareholders don’t want.

3. Conflict between a public company and corporation

‣

- In which kind of business organisations can these conflicts be considered typical?

CORPORATION SECURITIES

- 3 different securities and 3 different interest that have been issued by “Standard Oil Company”

Incorporated under the laws of the state of Kentucky

‣

Capital stock

- Capital stock: with this securities you were a shareholder because you had a value share/portion of the capital of this company;

Power to elect the management and gain assured

‣

Bond

- Bond : with this securities you were a creditor/bondholder of this company, the finance should be repaid due to a specific date