Skip to main content

Publications

Jan 2000
01
January 01, 2000

Legal Aspects of Doing Business in the United States

Summary

Copies and reprints of articles are available by contacting us via e-mail.


This article is designed to acquaint you with certain legal aspects of doing business in the United States, and to give some general guidance as to the way in which the American business enterprise normally interacts with the legal system.

Role of the Lawyer

The American lawyer plays a more significant role in the day-to-day operations of business than a counterpart in other countries. This is partly a result of the nature of the American legal system, and partly a matter of custom and practice. In addition to handling lawsuits and rendering legal opinions, the American lawyer is often involved in the negotiation and drafting of contracts, the design and implementation of employee benefit programs, the structuring of sales and distribution arrangements, labor negotiations, corporate matters, and long-range business planning. The lawyer also often serves as an intermediary between his client and federal and state governmental agencies.

The business person from outside the United States should not be alarmed at the involvement of a lawyer in contract negotiations with an American enterprise. That the American businessperson has asked a lawyer to be present does not imply any mistrust of the other party, nor does it indicate any concern as to the legality of the transaction being contemplated. It is likely that the American businessperson routinely asks a lawyer to be present in all important contract negotiations.

In addition to the purely legal responsibilities, the American lawyer plays a much broader role in business affairs than a counterpart in other countries. It has been said that "the American lawyer is first of all a businessperson and second of all a jurist." This may be overstating the case; however, the American lawyer does often become a business counselor in the sense that advice goes beyond what in most other countries would be considered legal advice. In keeping with this broader role, an American lawyer will often be a member of the board of directors of a company. Likewise, in operations such as new investments, acquisitions, securities offerings, and loans, the lawyer will be the "control center" of the operation and will often play the role of coordinator or organizer.

Differences in Legal Systems

Most businesspeople from outside the United States come from civil code jurisdictions in which commercial transactions and business dealings are governed by an extensive statutory code. In such jurisdictions, trade custom and usage usually also play an important role in the resolution of questions involving a commercial transaction or business dealing.

In contrast, all of the American states except Louisiana are common -law jurisdictions. Under the common law, which traces its roots to England, the primariness source for determination of the law applicable to any question lies in the historical reports of cases decided by the courts, although statutes (often not conveniently codified) are also of great importance. Furthermore, in the United States each state is free, as to most issues of commercial and business law, to reach an independent position. Accordingly, as to most questions, there will be: (1) a majority view, taken by the courts of most of the states which have decided the questions; and (2) a minority view, taken by the courts of other states. In a number of states the question is likely never to have been decided by the courts.

As a result, the American lawyer, and the businessperson doing business in the United States, must learn to tolerate and accept greater ambiguity and uncertainty than would be present in a civil code jurisdiction or even in a unitary common-law jurisdiction such as the United Kingdom. The American lawyer, in structuring a transaction, must have in mind not only what the courts of the respective state have declared, but also what the courts of other states have held. A cautious approach dictates planning for the contingency that the courts of the state may adopt any one of several possible positions.

One consequence of these differences in legal systems is the greater length and complexity of American contracts. In many countries, contracts involving large amounts of money can be made very simply upon standardized forms. In those countries, the civil code will supply many of the terms of the contract, and custom and usage will supply the remainder. In the United States, on the other hand, only a very limited reliance may be had on statutory codification and upon custom and usage. Accordingly, it is the American practice to prepare much more lengthy, detailed, and complex contracts, guarding against almost every conceivable contingency.

American Attitudes Toward the Law

The businessperson from abroad should also be aware of the American attitude toward law and the legal process. It has been said, and with some justification, the United States is a nation of laws. The American constitution itself is not merely a historical or social document; its language is the basis for actual litigation which results in damage awards of millions of dollars each year.

In other countries, to be forced to resort to the courts for the resolution of a commercial or business dispute would be considered a disaster. This is not the case in the United States. American businesspeople expect routinely to be involved in court actions in every place where they transact business. They, too, consider it unfortunate, but it is so common that they do not consider it a calamity. A cautious and conservative approach to the transaction of business requires that the possibility of litigation be planned for. This is another reason for the role played by American lawyers in business transactions.

This same willingness to engage in formal controversy extends to federal and state governmental agencies. The foreign businessperson may at first consider it immoral, or at least in bad taste, to become involved in conflict with some agency of federal or state government. The businessperson should be aware that such conflict is not considered in that light in this country. American businesspeople go about their daily business without a second thought for the fact that they may be involved in contested proceedings with taxing authorities, environmental protection authorities, and the like.

Overlapping Legal Systems

The overlapping legal systems found in the United States present a special area of confusion for the foreign businessperson. For example, when a businessperson arrives in the city of Grand Rapids, Michigan, to commence the transaction of business, he/she finds that not only must the government of the United States be dealt with, but also the State of Michigan, and the city of Grand Rapids. Each of these governmental units has its own area of jurisdiction and in many instances these jurisdictions overlap.

Under the American Constitution, the national government is supreme as to many matters of significance. However, if the national government has not acted in a given area by the adoption of legislation, then the matter is reserved for the states. Furthermore, in many cases, even if the national government has acted, the legislation itself provides for dual regulation by the states. Finally, as to many areas of law of commercial importance, the states, as sovereign jurisdictions, have the exclusive authority. Cities, although they are creatures of the states, are frequently granted a degree of autonomy by the state legislatures.

For example, the laws applicable to sales are generally the laws adopted by the various states. (Note that difficult questions arise when a sales transaction crosses a state line. Which state's laws apply to it?) However, national legislation and administrative regulations apply to many aspects of sales transactions. Thus, in the sale of consumer products, warranties given must comply with federal standards. If the sale involves the extension of consumer credit, federal consumer credit legislation will apply to it. If the goods are to be shipped in interstate commerce, federal regulation of interstate commerce will apply. If the sales transaction is found to be in restraint of trade, the federal antitrust laws may apply, and so on.

Or, to take another example, consider occupational safety and health laws. The federal government has adopted comprehensive occupational safety and health standards which are enforced by a federal agency. However, under the federal legislation, the states are also permitted to adopt safety and health standards. In many areas, the state standards may be more strict than the federal standards. These state standards are enforced by a separate bureaucracy operated at the state level.

Special Features of American Law

Certain areas of American substantive law are so unfamiliar and confusing to the foreign businessperson as to deserve special mention.

Antitrust Laws. Ever since the early 1900's, the United States has had, and has actively enforced, a variety of antitrust laws which are much more elaborate and far-reaching than those found in most other countries. These include laws prohibiting agreements in restraint of trade, laws prohibiting unfair trade practices, and laws prohibiting certain business acquisitions and mergers which would have an adverse effect on competition. These laws, which are intended in general to encourage competition, may have results that are surprising to the foreign businessperson. For example, it is a violation of the American antitrust laws to sell goods together with the imposition of a restriction on the prices at which the goods may be resold. Such resale price restrictions are, in general, invalid, and may subject the parties agreeing to them to liabilities.

Securities Law. Also since the early 1900s the United States and most states have enforced strict securities laws, which regulated the sale by business firms of their stocks, bonds, and other securities. In general, any arrangements made for raising investment capital in the United States should be considered poor possible application of federal or state securities laws.

Environmental and Consumer Protection Laws. In recent years, both federal and state governments have adopted a number of laws and have created agencies to administer regulations pertaining to the protection of the environment and of consumers. These laws are in a rapid state of development, and in planning U.S. operations concern should be for both the present and probable future impact.

Taxing Laws. The United States is largely a self-assessment taxing jurisdiction. The American honor system of reporting and paying taxes is, oddly enough, less abused than the governmentally enforced systems in many other countries. Failure to properly report and pay taxes can result not only in civil but also, in appropriate cases, criminal penalties.

Corporate Laws. Corporate law in the United States often proves unfamiliar to even the most sophisticated businesspeople from overseas. Thus, for example, no prior government authorization is necessary in order to form a corporation in the United States, there may be only one shareholder of an American corporation, the entire board of directors may be composed of aliens, and many states have no minimum capital requirement. Businesspeople from outside the United States are usually surprised at how easily a corporation can be formed in the United States.

Conclusion

The foregoing is not intended to convey the impression that doing business in the United States involves any greater legal burden than doing business in other countries. Obviously, many millions of American enterprises, large and small, operate without undue difficulty. It is important, however, the businessperson from outside the United States appreciates the differences between this country and the person's own country in the relationship between law and business.

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.

ACCEPTCANCEL

Text

+ -

Reset