Navigating the business world involves mastering a variety of skills, such as developing a degree of legal knowledge. Even if you’re not a lawyer, understanding the key legal terms can be essential for avoiding costly mistakes. Here are ten examples of legal jargon that may pop up in your business operations and why it’s important to know them!
- Liability
Liability is another term for legal responsibility. For example, if your company causes harm to a person or property, you could be held financially liable for it. Understanding liability is also important when forming a business. In a sole proprietorship, you’re liable for business debts, but forming an LLC protects your personal assets from business liabilities.
- Non-Disclosure Agreement
A non-disclosure agreement (NDA) is a binding contract that sets up a non-public relationship between two parties. This contract outlines confidential knowledge or materials that one party wants to share with the other party while restricting access to third parties.
- Intellectual Property
Intellectual property (IP) refers to designs, inventions, logos, and other creations of the mind. By protecting your IP, you ensure that your competitors won’t be able to use or copy your company’s unique assets without your permission. Common forms of IP protection include patents, trademarks, and copyrights.
- Trade Secret
While trade secrets are considered a form of intellectual property, they cover processes, devices, designs, formulas, or compilations of information that give the owner a distinct advantage over their competitors. Contrary to patented rights, the owner of the trade secret is responsible for protecting their trade secrets, but the rights are not limited in terms of protection as long as the owner continues to apply protections to their trade secrets. To qualify as a trade secret, the information must not be generally know or readily ascertainable. The continued protection of rights under a trade secret requires taking and continuing to take reasonable precautions to prevent the disclosure of the trade secret.
- Infringement
Infringement is a third party’s unauthorized use of another party’s intellectual property. A third party’s infringing use of another party’s intellectual property can bring substantial penalties for such use. The evaluation of a prospective or new product or service should always involve a diligent search to ensure there will be no infringing activities surrounding such product or service.
- License
A license is typically a contractual arrangement that allows the use of another party’s intellectual property rights. A license may come in many different forms including an exclusive license where only the licensing party is authorized to use the intellectual property included in the arrangement or a nonexclusive license whereby the owner may license other parties to use the intellectual property. While exclusive licenses offer more protection, they typically involve a higher license fee over a nonexclusive license.
- Indemnification
Indemnification is a broad concept that refers to the obligation of one party to compensate another party for damages or losses incurred. In business law, this agreement usually comes into play when one party is held liable for damages caused by someone else.
- Force Majeure
A force majeure is French for “major force.” It’s a contract clause that excuses a party from fulfilling its obligations due to extraordinary events such as a pandemic or natural disaster. A force majeure is a common safeguard that can prevent a variety of legal disputes and release you from liability during extreme situations.
- Material Breach
A material breach occurs when one party’s performance falls significantly short of the terms stated in a contract. For instance, if you hire a catering party for a fundraising dinner and they don’t show up, you can sue them for a material breach of contract.
- Waiver
While a provision in a contract requires a party to perform in certain ways to avoid a material breach of the contract, the party to receive such performance may be deemed to have waived the requirements for the party to perform based upon the party to receive such performance previous authorizations to forgo performance by the party required to perform.