Business Conflicts of Interest Laws

Business conflicts of interest laws are critical in protecting consumers and preventing unethical behavior. Businesses should be aware that the law protects a consumer or the consumer’s interests, whether the transaction is considered to be unfair. Generally, if a conflict exists, there are limits on what businesses can do or say while they have an ongoing business relationship with the consumer. Laws and regulations requiring transparency of business relationships, size restrictions and a variety of other requirements are designed to prevent consumer harm. The laws and regulations are not likely to result in litigation, but they can substantially reduce the chances of consumer harm.

Although each law is different, there is some common ground across the country that states can dig up each time they update their laws. Businesses should have an understanding of these laws when working with consumers. For instance, if a business is considering participating in an offering and has customers who could be affected by the offering, it should consider whether it needs to disclose to all of its customers that it might be investing, underwriting or selling products or services that are likely to involve conflicts of interest for the particular products and services involved. Businesses must also consider not only existing laws but also initiatives from regulators that could affect their business practices.

What Is a Conflict of Interest in Regards to Business Law?

When a business has an ongoing relationship with a consumer and it has an interest in the consumer making a purchase or taking some other action, there is likely to be a conflict of interest. What a conflict of interest is in regard to business law can vary by state, but some general rules apply across the country. Businesses must disclose to consumers any existing conflicts of interest. The disclosure has to be clear and in plain language. For instance, if a business receives compensation from a third party for recommending a product or service that the business intends to sell or invest in, it must disclose that fact. To do otherwise could leave the consumer unsure of whether they should trust the business with their money or with their purchase decision.

What Is a Duty of Loyalty?

One aspect of business conflicts of interest laws is that most state conflicts of interest rules require businesses to treat the consumer and the business relationship in an ethical and fair manner. This requirement is known as a duty of loyalty. The basic principle behind the duty of loyalty is that all persons, including businesses, should behave in an honest, trustworthy and impartial way towards each other. If a business violates this duty, it could be at risk for civil or criminal penalties if the violation occurred under certain circumstances, such as when dealing with the public.

Laws that regulate business relationships also require businesses to act in a way that is fair and honest. As part of this requirement, the law allows many types of acts and practices that are considered unfair by the law. Some examples include any act or practice that is designed to coerce a person into making a purchase, any deceptive acts and practices, acts or practices conducted with the intent to harm another party, and false statements of material fact.

What Are Some Common Examples of Business Conflicts of Interest?

Many business conflicts of interest laws that require a duty of loyalty and disclosure exist for various goods and services. Some examples include health care, medicine, food and nutrition; securities, investments and financial products; real estate agents, brokers and developers; car dealerships; escrow companies; charities, donors and non-profit providers; insurance agents or insurers; travel agencies or tour operators; as well as employers who have an ongoing relationship with employees or potential employees.

Each state may have its own particular rules on which acts and practices are considered unfair, but generally speaking, it is limited to what is considered to be for the benefit of the business and against the interest of the consumer. According to most business conflicts of interest laws, a business has a duty of loyalty to its customers and other recipients of any services or products. Under this protection, a business should not engage in certain acts or practices that could be unfair to the consumer or any other party that receives any goods or services from the business.

Conclusion

Conducting business in a way that results in a conflict of interest gives rise to the duty of loyalty. In order to comply with states’ rules, businesses must determine whether or not they have any existing conflicts of interest and disclose those conflicts if they do. Businesses can minimize risks by providing clear information about their relationships with consumers and ensuring that these relationships are fair for all parties involved. The law surrounding business conflicts of interest can be complicated, but it is an area that each business should be aware of.

If you have any questions regarding business laws for your business, use this link to schedule a consultation with a law firm up-to-date on all the local business laws in your area.