Small Business and the Law

Understanding business law takes many years. No one expects a small business owner to get a law degree or to have a complete understanding of legal concepts related to business ownership and operation. Because you will deal with numerous people, products and companies, you should be aware of your rights and responsibilities. Common sense and caution are essential in business. A general understanding of business law and Insurance1 go hand in hand with good business management.

CONTRACTS. Agreements which a business owner makes in the course of carrying on a business may be called contracts. A contract is a legal agreement between two or more parties in which each has rights and obligations. Contracts may be enforced by the courts if they meet certain requirements. A contract must have the following characteristics to be legal: mutual agreement, consideration2, form, competency3 and legal subject matter4.

Since contracts can be enforced by law, it is important that people understand them. When an individual fails to honor a contract, the other parties to the contract can legally require that the contract be fulfilled or a satisfactory Remedy5 be provided.

For an agreement to be mutual, there must be a clear, definite, and serious offer and an unqualified acceptance6. If there is to be mutual agreement, there is no need for a true meeting of the minds. This means that the parties involved need not to be thinking of the same thing. If a merchant offers to sell some goods for $55 and a customer accepts the offer, it does not really matter that the merchant intended to say $75. There is a binding contract at $55 if the party can prove the offer was made and accepted. This can be done by producing witnesses and documents. The subject matter of a contract must be stated in definite terms.

Parties to a contract must receive something of value and give something of value in return. This something of value is called consideration. The consideration may be cash, goods or a service, or it may even be a particular action.

A contract is made if there is an offer and acceptance, consideration, competent parties, and legal subject matter. The contract may be written or oral. A contract for the sale or transfer of land or real property must be in writing. Contracts which take more than one year to perform usually must be in writing. This includes leaseS7 of more than one year.

A competent party is one who has legal capacity to enter into a contract. A person must be of legal age and sane in order to be considered competent.

THE LEASE. Because of the greater capital required to own real property, most small business owners start out by renting or leasing business space. When an owner decides to rent, an agreement is made with the landlord specifying the amount of rent to be paid and other conditions. The conditions agreed upon, when put into written form and signed by both Tenant8 and landlord, make up the lease.

A lease is a contract to rent land and/or buildings for a specified time for a consideration. A lease is usually written and states the tenant's rights and obligations. A written lease is common business practice.

The lease usually states the term of the tenancy9 in months or years. However, sometimes in unwritten agreements nothing is said about the length of time the property is to be rented to the tenant. This type of tenancy is known as tenancy at will. When the landlord wants the tenant to move, 30 days written notice must be given. The tenant, on the other hand, docs not have to give the landlord any notice.

The length of the lease is an important consideration. You may not want a long lease, especially if your business is not successful. On the other hand, an owner does not want an increase in rent if the business does well. It may be desirable to have a short-term lease with the option of renewing at the same rent. This is known as an Optional term lease10.

Leases may be classified according to the matter in which rent is paid. The Term lease11 is a popular type of lease. It states the amount of rent to be paid for a specified time. Other types give the landlord a percentage of business income instead of a rent. This is called a percentage lease12. Sometimes the rental agreement is a combination of the term lease and the percentage lease. With this agreement, the landlord receives a fixed rent in addition to a percentage of business income.


Notes: 1. страхование; 2. возмещение, компенсация; 3. компетенция, правомочность; 4. предмет; 5. средство; 6. акцепт, согласие на оплату денежных и товарных документов; 7. аренда, договор об аренде; 8. наниматель, арендатор; 9. владение на правах аренды; 10. аренда с правом выбора срока; 11. аренда на срок; 12. аренда с правом получения процента прибыли

1. Match the words with their definitions.


1) The right, need, or ability to choose between two or more alternative courses of action.

2) A person or organization having the right to hold certain land or buildings, usually under a lease.

3) The business of insuring lives and property against harm, damage or loss in return for the payment of a sum of money according to the degree of risk.

4) The right of a person or organization to hold certain land or buildings under a lease.

5) The act of accepting, taking what is offered or given.

6) A trader who buys and sells goods or commodities in large quantities, usually at his own cost.

7) The owner of a property who allows a tenant to use his land or house in return for payment of rent, usually as stated formally in the lease.

8) Money paid for the use of land considered as a factor of production.

9) Something of material value given by a party to a contract in return for some duty taken upon himself by the other party.

10) An agreement in writing by which one person gives another the right to use property usually for a fixed number of years.

2. Supply the sentences with the missing words.


1) I hoped that we might... our business partnership.

2) ... about these decisions is extremely difficult.

3) These measures are believed to be a good... against disorder.

4) Such an unwieldy banking system is unable to deliver the... .

5) We didn't... in our business last two months.

6) The... had expired and would not be renewed.

7) He will be expected to show... in the methods of market survey.

8) The average American car... drives 10,000 miles per year.

9) The Postmaster-General... the tender of the English Marconi Company.

10) Once they took up the... they couldn't be evicted.

3. Complete the list below by inserting the missing forms.




To decide


To exchange


To deliver

4. Complete the phrase by matching the word/expression on the left with its best association on the right.

1) to break into a. on the ground

2) to learn from b. your mistakes

3) to look c. a feel for

4) to rely less d. a market

5) to have a e. budget

6) conservative f. 's presence

7) to establish g. in detail

8) someone h. customers

9) it counts i. on agents

10) a much reduced j. for a lot

5. Use the modal verbs must, have to, should To complete the sentences below.

1) It is compulsory to obey the law. You... obey the law.

2) It is not a legal duty to report fraud. You ... report fraud.

3) It is a moral obligation to report fraud. You... report fraud.

4) It is the prime duty of an auditor to respect a client's confidentiality. You... respect a client's confidentiality.

5) Auditors are advised to follow the code. You ... follow the code.

6) Auditors are not allowed to be employed by a client. You... be employed by a client.

6. Complete the following sentences by putting the verb in brackets into either the Present Perfect or Past Simple.

1) At the end of last year the dollar (stay) at 1.5.

2) Last January the dollar (fall) to a new low of 1.45.

3) Since then it (be stable) pretty.

4) As you can see on this graph, I (plot) domestic and export sales.

5) Export sales (fluctuate) pretty widely.

6) We yet (see) the full effect of the declining dollar.

7) Last quarter we (see) one of the best results.

8) We already (notice) a slight drop in orders.

9) The low profit margins (be reflected) in last year's figures.

10) We (receive) two big orders so far this quarter.

7. Complete the following sentences with /too/both/either/neither

1) I think this company is going to bust. – I do... .

2) He didn't think the results were good. I didn't... .

3) ... of us had invested in Parkroll. We... lost a lot of money.

4) ... companies grew rapidly. ... controlled their growth.

5) Which company are you going to invest in? – ..., I don't really mind.

6) Which company are you going to invest in? – ..., they are... in unstable markets.

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