The Law:  A Critical Requirement for Wealth Creation

In Canada and other western democracies, we operate under the rule of law.  But what does that mean and why does it matter when it comes to the work tax and financial advisors do and the contractual arrangements they have, including letters of engagement?  The answer is both simple and profound:  the rule of law may be one of the most important requirements for the creation of wealth. For these reasons, Knowledge Bureau has created the certificate course:  Understanding Employment and Business Contracts.

Excerpted from Understanding Employment and Business Contracts.

The Backdrop.  The rule of law is a formal set of rules that governs how we interact with one another. We all engage with it on a daily basis – in society, in business, in employment, in conjugal relationships, as well as with our relationship with the Canada Revenue Agency – amongst other important aspects of modern life. 

Why is it Important?  From a financial point of view, the rule of law gives us confidence that when we provide a customer or client with a debit machine, the appropriate amount of funds will be deposited in our bank account.   It gives us confidence that when we place an order, the service provider will deliver.   It gives us confidence that the goods and services we purchase are safe because they meet minimum acceptable standards.

What would happen without it?  Without the rule of law, businesses and consumers would have very little confidence in one another.  We would spend our time and resources in an attempt to protect our possessions (and ourselves).  We don't think about it. It's invisible. But without it, we would live in a state of chaos.

Why is it so important in Wealth Creation?  The rule of law is likely the single most important requirement for the creation of wealth. Rather than spending time worrying about safekeeping our money, we can rely on the banking system to keep our money safe. This legal framework allows entrepreneurs and business owners time to practice their craft, or to innovate and create value where none existed. 

What are the Obligations to Make it all Work?  While the rule of law offers protections, it also imposes obligations.  We are all expected, whether as consumer or producer or provider, to know how the law applies to us, despite how complex the legal system may be. Courts have long held that ignorance of the law is no excuse.  That is certainly true of tax law, where the burden of proof and responsibility for the tax return lies with the taxpayer.  

Why Business Owners Need More Help Understanding the Law.  When operating a business, owners must be aware, at the very least, of how the law affects them.  With new laws being created in provincial legislative assemblies, Parliament, and in courtrooms across the country on a regular basis, the task of understanding your obligations can be overwhelming.

The Use of Contracts.  Contracts lie at the very heart of our commercial system. At common law, contracts are agreements imposing legal obligations while providing benefits for the parties involved.  The freedom parties have to enter into agreements on their desired terms without any outside interference is referred to as the freedom to contract. This principle forms the cornerstone of our western economy. 

Contracts or contractual relationships permeate our lives.  Your promise to pay principal and interest payments on your mortgage is contractual. In the business world, leases, employment, lines of credit, providing services or products are all contractual relationships in nature.

Understanding contractual principles and how these interact with the different aspects of your business will provide you with the insight necessary when creating or interpreting these legally enforceable agreements.

Bottom Line.  Ultimately, understanding and applying contractual theory builds equity two ways.  First by reducing exposure to liability, you protect the time and money you have invested over the lifetime of your business. Secondly it establishes clear legal relationships with all key or potential partners including, investors, customers, clients, suppliers, and employees. These agreements become the building blocs on which you grow the value in your business.

Additional Educational Resource: The purpose of the Knowledge Bureau certificate course, Understanding Employment and Business Law, is to provide you with tools to help you navigate the complexity of our legal system so you are able to recognize legal traps and when you should consult with professionals.

These skills will help you manage your risk by reducing your exposure to liability.  Risk management is key to building equity in your business. These legal documents govern the relationship between your business and everyone else, including employees, customers, and suppliers. Poorly drafted documents, or worse yet, no contract at all, leave your business exposed.