Important Law Terms Every Business Owner Should Know

posted byBagasian LawNovember 11, 2020

As a business owner, it is imperative to understand the nuances of business law to protect yourself and your business from future legal complications. Law, especially corporate law, can be very complex and have significant legal ramifications if handled incorrectly.

To ensure that you understand some of the basic terms in the realm of business law, we have created a guide to get you started. In this article, you will learn about:

Private Limited Company

The first business law term we are going to cover is private limited companies .

A private limited company holds its shareholders to limited liability, meaning this shareholder’s liability is proportionate to how much they have invested in the company.

However, private limited companies place restrictions on shareholders. For example, when selling or transferring shares, shareholders have to first offer these shares to other shareholders, and cannot offer them to the public.

LLCs (Limited Liability Corporations)

Continuing the discussion of liability, the next business law term we are going to define is LLC or a limited liability corporation.

An LLC or limited liability corporation is a type of business structure that is often described as a cross between a corporation and a partnership. In an LLC, owners have “limited liability,” as the name suggests, meaning they are not personally liable for the company’s debts.

However, similar to a business categorized as a partnership, LLCs pay fewer taxes than a corporation would.

Partnership/ LLP

LLCs are just one of many types of business structures . The next type of business structure we are going to discuss is a partnership.

Partnerships are for businesses run by multiple people.

A business can be categorized as a general partnership, which means that all partners are liable. Or a business can be a limited partnership, meaning that there are both general partners and limited partners. Limited partners serve as investors and are not held to the same standards of liability.

A common legal consequence of a partnership is a partner buyout . This takes place when a business partner chooses to leave the company, whether to retire or begin a new venture.

However, partner buyouts require litigation to ensure that the company is being turned over legally and to prevent any legal complications in the future. For example, the partners need to define what their company is valued at, either by negotiating this value by themselves or having a third party appraise the company.

Mergers and Acquisitions

One of the most complex legal actions in business law is buying or selling a business , otherwise described as a merger or acquisition .

The first business law term we will define is an acquisition, which when one company is bought by another.

On the other hand, a merger is when two businesses come together under one parent company, becoming a separate entity.

Mergers and acquisitions have major financial and legal implications. For example, once an acquisition takes place, the company that has been purchased ceases to exist legally, meaning the stock of that company can no longer be traded.

Product Liability

If you run a business that sells a certain product that is being used by consumers, it is important to understand product liability .

Product liability suggests that the owner of a business selling a product is liable if that product does not function as advertised or harms the consumer in any way.

The consumer of this product is likely to sue the business that sold them this product, however with the help of a lawyer these disputes can be avoided by setting up legal provisions such as warranties or money-back guarantees.

Shareholders & Stakeholders

Although the terms shareholder and stakeholder sound similar, shareholders and stakeholders have different functions in the business.

First, let’s define the business law term shareholder.

A shareholder owns shares of stock, therefore owning a portion of the public company. Although shareholders profit off of the company’s value, if it’s stock price increases, for example, but are not liable for debts the company incurs and do not need to be dedicated long-term.

On the other hand, a stakeholder is committed to the long-term success of the company and is invested in its success for greater reasons than the value of its stock. Stakeholders are those who bring the company success, such as employees, partners, or suppliers.

Settlement, Arbitration & Mediation

If you happen to find yourself in an unfortunate circumstance that requires litigation, it is important to understand the different aspects and outcomes of a legal dispute.

A settlement means the dispute has come to an end or has been dismissed. In this case, the dispute has either been resolved, or a compromise has been made through compensation or other means.

Arbitration is when a third-party help resolves a dispute internally, such as between the business owner and an employee. The arbitrator is non-judicial but helps resolve disputes that have legally binding consequences.

Mediation is essentially the same process as arbitration, where a third-party helps resolve a dispute, however, the resolution decided by the mediator is not legally binding. This means the dispute would still have to go through a judge before having any legal consequences.


Running a business requires understanding a variety of complex business law terms and concepts. Hiring legal representation ensures you, as a business owner, are making the right legal decisions. From drafting contracts to understanding tax laws, a lawyer will ensure the success and safety of your business.

Los Angeles-based lawyer, Alina Bagasian will provide the best legal services for your business. Possessing an understanding of corporate and commercial business, Alina Bagasian is ready to represent your business and provide you with excellent legal advice.

The Law Offices of Alina Bagasian have achieved 100% client satisfaction, providing clients with unlimited advice, and offering eight different services to avoid any legal complications when starting a business.

Get the help you need today!

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