Browse Taxation and Regulation (REG)

REG Business Law Foundations and Legal Relationships

REG business-law coverage for agency, contracts, debtor-creditor rules, federal law, and entity structure.

This part covers the business-law segment of REG. The point is not to turn the section into a law-school outline. It is to understand the legal relationships and transaction rules that affect enforceability, authority, liability, creditor rights, and entity structure.

Business-law questions should be read as relationship questions. The correct answer usually turns on who had authority, what agreement was enforceable, which creditor had priority, which federal rule applies, or which entity form changes liability.

In This Part

Business Law Lens

Legal area First question Common REG trap
Agency Who had power to bind another party? Confusing actual authority, apparent authority, and ratification.
Contracts Was there formation, performance, breach, or a valid defense? Jumping to remedies before deciding whether the contract is enforceable.
Debtor-creditor law Which creditor right, security interest, or bankruptcy rule controls priority. Treating all creditors as equal.
Federal business law Which statute or regulatory rule changes the private-law result. Applying general contract logic when a federal rule controls.
Business structures Which entity form changes authority, liability, governance, or continuity. Treating tax classification and legal form as the same question.

Business Law Analysis Sequence

Step What to do Why it matters on REG
1. Identify the legal relationship Determine whether the fact pattern involves agency, contract, creditor rights, federal law, or entity governance. Business-law questions turn on relationships before remedies.
2. Determine authority or enforceability Ask who had power to act, whether an agreement was formed, or whether a statutory rule overrides the ordinary result. Many wrong answers assume the desired business outcome is legally binding.
3. Rank rights and obligations Identify primary liability, secondary liability, priority, fiduciary duties, or compliance obligations. REG often tests who bears the obligation after the relationship is classified.
4. Apply defenses and exceptions Consider termination, breach defenses, bankruptcy effects, perfection issues, or federal-law exceptions. Exceptions frequently change the result after the basic rule appears clear.
5. Separate legal form from tax result Distinguish entity authority, owner liability, and governance from tax classification. Legal business structures and tax treatment overlap but are not the same analysis.

Business Law Checkpoints

Checkpoint Exam use What to avoid
Legal relationship Classify the facts as agency, contract, creditor rights, federal compliance, or entity governance. Jumping to remedies before identifying the relationship.
Authority or formation Decide who had power to bind another party or whether an enforceable agreement exists. Assuming the desired business result is legally binding.
Rights and priority Rank primary liability, secondary liability, creditor priority, fiduciary duty, or compliance obligation. Treating all parties as having equal rights after classification.
Defense or exception Check termination, breach defenses, bankruptcy, perfection, statutory exceptions, or federal override. Applying the basic rule after the facts introduce an exception.
Legal versus tax form Separate authority, liability, continuity, and governance from tax classification. Using tax treatment as a substitute for legal entity analysis.

How to Use This Part

  • Read these chapters as applied law for CPA candidates, not as abstract doctrine.
  • Focus on what legal fact changes the result, obligation, or enforceability outcome.
  • Return here when a REG miss is really about legal relationships rather than tax treatment.

In this section

Revised on Monday, June 15, 2026
2. Ethics & Procedure
4. Property Txns