This paper seeks to examine the economical effect, if any, upon what the legal system requires of business in America, from a sole proprietor, to a corporation. The paper will also have to look at the costs imposed on operating a business for obtaining a business license, advertising, filing fees paid to the State, and all such costs and within a State, City, and County.
2. Analysis and Discussion
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The conduct of any business in any part of the world is regulated by the government and therefore business activities are governed by laws locally and on the state level. As to why the government impost cost to conducting business is based on basically two state powers, which are the police power (Lee, 1973) and the power of taxation. In regulating the business entities and the latter are activities, the government has the best of intentions of promoting public welfare. Hence, under the local level of government, there can be imposed local permits fees and license fees that must be paid by business operators whenever these entities are sole proprietorship, partnership or corporations are to start in operating their business. Since these fees are being imposes to recover the cost of government in allowing the conduct of business, such power of the state from local to national is being imposed by the exercise of police power of the state by the local level government.
Being therefore cost of regulation, the amount of cost is rather fixed and rates may be more or less the same for the group of similar type of business industry. Still pursuant to the police power of the state, the government enforces the laws of business and administers justice where business entities complain of violations of commercial laws. To illustrate the point, business entities enter into contracts and in certain cases it could happen there could refusal to comply with the obligations created out of contracts. The parties cannot put the law into their hands, thus there must be a court systems that must settle the issues between the parties. One may therefore clearly see the relevance of the legal system which is part of doing business. Since legal system entails services rendered by government, it should not be a surprise when government courts require the payment of filing fees as cost of pursuing justice on the part of business entities.
But since government does not only interfere from the local level but also at state level, another form of charges are imposed under the state’s power of taxation. Since the power of taxation (Goode, 1951) involves the revenue generating power of the government, the government may impose several forms of taxes such as income taxes and value added tax. Income tax (Goode; 1976; Smith, et. al, 1958) is a tax based on the financial earning capacity of the business entities, which may include sole proprietorship, partnership and corporation.
Under this kind of taxation, the state is charging taxes on the basis of an assumed obligation of the taxpayer-entities to the state in return for the service given by the state to the business entities in the form of security and protection and other services by reason for its being a government that needs funds to defray its expenses. Another form of taxation which may also be imposed by the local levels of government if provided in their city charters, are the business taxation. This may take the form of sales tax or the more familiar business taxes. As distinguish from income taxation, business taxation, charges the taxpayer for having been given the privilege of operating a business. Such kind of taxes is normally based on the amount of gross receipts, or sales revenues as basis for output tax but subject to certain deductions for claims like input taxes to reduce the taxes payable to the government.
Surely the effect of these charges economically could just be huge that could affect the operation of doing business. Since business entities operate under the idea of being profitable to be able to recover cost expended in business, the amount of taxes, charges and licenses should not be too prohibitive as to discourage business from doing business. This might be apparent for business taxes in the form of excise tax (Fossen, 2002) on cigarettes and wines or the so called ‘sin taxes’. This kind of taxes are also in the nature of excise taxes and therefore part of the business taxes like the sales tax or value added tax.
It may be observed that the higher amount of taxes imposed on certain taxes like ‘sin taxes’ manifests the intention of the government to control the consumption of said good because these products may not be essentially be good to people because of health effects. To illustrate the point, the government prohibiting smoking in public place may have already prohibited TV advertising of the industry’ products because of the effect of the industry on public health only that the government cannot completely ban the sale of these products. Hence, being tied with its hands to limit production without violating the laws of commerce, the government resort to higher taxes to discourage consumption.
It may be concluded that there are indeed effects of the legal system on how the business entities operates in a certain place. To such the extent of these economic effects must be viewed in the context of the objective of governments in terms of its paramount purpose of encouraging entrepreneurship while ensuring compliance with laws that are conducive to protecting the life, health, employment and other need of its people. Since business entities could not be avoiding this government interference on business operations, they may just as well comply since these laws are also meant to protect them. Without regulation there could be chaos in society as privileges to operate business could be subject to abuse. Imposing charges to regulate is therefore justified in the exercise of the police power of the state.
On the other hand, it is necessary to emphasize that governments also need to defray its expenses and the means to the attain the same is to impose several kind of taxes from business entities and individuals. When viewed on a wider concept, business entities also need the government in terms of regulation and protection of its interest. Without the government administering the laws on commerce, business entities would be in dangerous situation since they would be operating as if they are playing basket ball without a referee who will tell them who is wrong and who is right in case one of the teams abuses its rights. If therefore the are no government to charge regulation cost and taxes, the law will just be useless because there would be no agent to implement the same. Hence, business entities are to accept the reality of these charges and taxes and factor them in computing profits.
Fossen (2002) Norfolk Island and Its Tax Haven; The Australian Journal of Politics and History, Vol. 48, 2002
Goode (1951) The Corporation Income Tax; Wiley
Goode (1976) The Individual Income Tax; Brookings Institution
Lee (1973) A History of Regulatory Taxation; University Press of Kentucky, 1973
Smith, et. al (1958) Income Tax Differentials; Tax Institute of America
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