Five Basic Legal Concepts that Entrepreneurs Need to Know

Updated: Jul 29

by Yen-Yi Anderson, on October 20, 2021





As an entrepreneur, on a basic level, you are a person who starts a new business. You are living out “The American Dream.” Modern dictionary defines entrepreneurship with the following three interrelated functions. First, the entrepreneur initiates and organizes a business venture, identifying an opportunity and assembling the necessary tools, skills, and personnel to pursue it. Second, the entrepreneur manages the venture, overseeing its efforts to attract customers and generate revenues, at least for an initial period. And third, the entrepreneur assumes the risk of the venture, generally by investing your own capital and reputation and by forsaking a guaranteed income.

Linked to the functional characteristics of the entrepreneur is a set of personal traits that also plays an important role in defining the term. Entrepreneurs, in the American imagination, are leaders, innovators, pioneers, problem solvers, and risk takers; you are diligent, persistent, charismatic, dynamics, imaginative, and resourceful.

However, with the limited financial resources you have at the beginning of your business venture, you might not have a group of lawyers following you around to help you make decisions that you encounter on the daily basis. Just as entrepreneurs need to great ideas, need to know the basics of accounting and marketing, you also need to understand the basics of business law to avoid the potential downfall that can trigger costly litigation. In other words, by understanding the basics of business law, you will ensure that you are able to stay in business for a long time.

Here are five basic concepts of business law that any entrepreneur should understand:

  • Basic concept #1: Vicarious Liability

Under the doctrine of vicarious liability, an employer can be held responsible for a wrongful act carried out by an employee – or by someone whose role is “akin” to that of an employee – even where the employer has done no wrong itself. A sufficient connection between the wrong committed and the employee’s role and duties must be established to make it fair to hold the employer vicariously liable. Employers should take appropriate precautions to mitigate the risk, including reminding employees of workplace policies and procedures, such as those on acceptable equipment use and scope of work; providing additional training on duties of confidentiality and best practices; performing a survey of employees’ equipment and upgrading or providing additional equipment if required; establishing regular calls or other communications with employees to check on their progress and properly supervise their day-to-day activities; and purchasing liability insurance if, after carrying out appropriate mitigation measures, the risk is still perceived to be too high.

  • Basic concept #2: Employment Relationship

Within employment relationship, overtime rule and properly classifying your employees are crucial in the entrepreneur’s mind. Many entrepreneurs understand and accept that working long hours for little pay is the norm for a startup. However, for your employees, those who work more than 40 hours per week are entitled to overtime pay, unless the employee is an exempted worker. It is important to calculate the correct regular rate of pay for the non-exempted employees and document all the time sheet, including mealtime, break time, any bonus or commission to avoid the expensive litigation costs down the road.

  • Basic concept #3: Patent, Copyright and Trademark

As an entrepreneur, you start your company with that one golden idea. Given that the creativity of the entrepreneur is perceived as the driving force of structural change of the society, you as an entrepreneur should protect your idea with intellectual property law. On the other hand, you also want to make sure your ideas, including logo, design, photo, or company name, do not infringe someone else’s intellectual property. Punishments for infringing intellectual property rights range from crippling monetary penalties to injunctions, both of which can be detrimental to your business.

Intellectual property law covers:

  • Patents, which protect inventions

  • Copyrights, which protect artistic creations

  • Trademarks, which protect brands

  • Basic concept #4: Business Agreement/Contract

The main definition of a contract is a single promise or a set of promises that is enforceable by law. There are two components of agreement: offer and acceptance. The offer is the terms lined out in the agreements, and an offeror must make the offer to the offeree. An acceptance is a manifestation of assent to the terms of the offer made by the offeree in the manner invited or required by the offer. The most important aspect of the acceptance component is that the offeree must intend to do business with the offeror. As an entrepreneur, you must confirm these two components are there as you are entering into a contract in order to make sure your time, effort, and money are invested in a contract that is enforceable in the court.

  • Basic concept #5: Product Liability

If your startup manufactures, wholesales, distributes, and/or sells products, you need to under product liability in order to protect your startup from financial loss if a defective product causes harm. The law requires that a product meet the ordinary expectations of the consumer. When a product has an unexpected defect or danger, the product cannot be said to meet the ordinary expectations of the consumer. Typically, product liability claims are based on state laws, and brought under the theories of negligence, strict liability, or breach of warranty. In addition, a set of commercial statutes in each state, modeled on the Uniform Commercial Code, will contain warranty rules affecting product liability. There are three types of defects that might cause injury and give rise to manufacturer or supplier liability: design defects, manufacturing defects, and marketing defects.

These are just a few of the concepts of business law that an entrepreneur should know. Each area mentioned above can become quite complex. We, as Anderson and Associates, are experienced in these areas and will be more than happy to explore all possible defense options and strategies available to you.


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Yen-Yi Anderson, Managing Partner of Anderson & Associates, founded the law firm in January 2014. Yen-Yi Anderson focuses her practice on excellence in business immigration, commercial law, and civil litigation.

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