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Business Law Terms Explained

35+ core business law terms in plain English — contracts, torts, business entities, and intellectual property. Built for intro business law students. U.S.-focused general reference, not legal advice.

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A

Agency
A legal relationship in which an agent is authorized to act on behalf of a principal.
Arbitration
A dispute resolution process in which a neutral third party hears evidence and issues a decision, often binding, outside of court.
Articles of Incorporation
The document filed with a state to create a corporation.

B

Breach of Contract
Failure to perform a contractual obligation without a legal excuse.

C

Capacity
The legal ability to enter into a contract; minors and people of unsound mind may lack it.
Consideration
Something of value exchanged between the parties to a contract; it is required for the contract to be enforceable.
Contract
A legally enforceable agreement between two or more parties.
Copyright
Legal protection for original works of authorship fixed in a tangible medium, such as writing, music, and software.

D

Damages
Money awarded by a court to compensate for a loss or injury caused by a wrong or a breach of contract.
Defamation
Making a false statement of fact that harms another's reputation; libel is written and slander is spoken.
Duty of Care
The legal obligation to act with reasonable care to avoid harming others; for corporate directors, the duty to make informed decisions.

F

Fiduciary Duty
A legal obligation to act in the best interest of another party, such as a director's duty to a corporation's shareholders.

G

General Partnership
A business owned by two or more people who share profits and management and who are personally liable for the business's debts.

I

Intellectual Property
Creations of the mind protected by law, including patents, copyrights, trademarks, and trade secrets.

J

Joint and Several Liability
A rule under which each of several liable parties can be held responsible for the entire amount of damages.
Jurisdiction
A court's authority to hear a case and issue a binding decision.

L

Limited Liability
A legal protection under which owners of certain business entities are generally not personally liable for the business's debts beyond their investment.
Limited Liability Company (LLC)
A business entity that combines the limited personal liability of a corporation with the flexible management and tax treatment of a partnership.

M

Mediation
A non-binding process in which a neutral mediator helps the parties reach a voluntary settlement.

N

Negligence
Failure to exercise reasonable care, resulting in harm to another.
Non-Compete Agreement
A contract restricting a person from working for competitors for a set time or in a set area; enforceability varies by state.

O

Offer and Acceptance
The two steps that form a contract: one party proposes terms and the other agrees to them.

P

Parol Evidence Rule
A rule that bars using prior or contemporaneous statements to contradict the terms of a final written contract.
Patent
A government grant of exclusive rights to an invention for a limited period, generally 20 years from filing for U.S. utility patents.
Piercing the Corporate Veil
A court's decision to disregard limited liability and hold a corporation's owners personally liable, for example in cases of fraud or commingled funds.
Precedent (Stare Decisis)
The principle that courts follow earlier decisions when deciding similar cases.
Promissory Estoppel
A doctrine that can enforce a promise without consideration when the other party reasonably relied on it to their detriment.

R

Respondeat Superior
The rule that an employer is liable for employees' wrongful acts committed within the scope of their employment.

S

Sole Proprietorship
An unincorporated business owned by one person, with no legal distinction between the owner and the business.
Statute of Frauds
A requirement that certain contracts, such as sales of land and agreements that cannot be performed within one year, be in writing to be enforceable.
Statute of Limitations
A law setting the time limit within which a lawsuit must be filed.

T

Tort
A civil wrong, other than breach of contract, that causes harm and gives rise to legal liability.
Trade Secret
Confidential business information that gives a competitive edge and is protected as long as it is kept secret.
Trademark
A word, symbol, or design that identifies the source of goods or services.

U

Uniform Commercial Code (UCC)
A standardized set of laws governing commercial transactions, including the sale of goods, adopted in some form by nearly every U.S. state.

V

Voidable Contract
A contract that is valid unless one party chooses to cancel it, for example because of misrepresentation or duress.

W

Warranty
A promise about the quality or character of goods sold.

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