Legal Guide

Legal Environment of Business

by Nikky Jha · 3 min read

Legal Environment of Business

Introduction

  • The environment is a very important factor when it comes to the existence of any form of life on earth. The environment is the factor that decides the quality of life and the form in which life sustain. 
  • The concept of environment is not limited to life and livelihood; the concept of environment is of utmost importance when it comes to business. There is a big area of the business environment that deals with the different aspects of the environment under which a business run and carry on its purpose. 
  • Here we will discuss one such paramount factor in the business environment, which is the legal environment of business.

Legal Environment of Business

  • The word legal has a great impact on every aspect of lives as well as businesses. The meaning of legal is anything that is permitted by law. Though the source of law in different areas of the earth differ, there are different types of law-making bodies; for example, in India, which is a democracy, and where the law is made by a parliamentary form of government, and the parliament of India as well as the State Legislature are the law-making bodies. So, whatever laws are made by these bodies are legal. 
  • The Legal Environment of Business is one of the essential components of the business. The Legal Environment of Business deals with the legal mechanism which governs every stakeholder of the business, including owners, laborers (organized and unorganized), consumers, etc. 
  • The Legal Environment of Business provides the mechanism under which the business activities of any country can flourish and run the business as per the laws of the nation. The Legal Environment of Business refers to the strategies, laws, and schemes adopted by the government to manage and help the business ecosystem of the country. 
  • The Legal Environment of Business includes various legislations, laws, schemes, administrative orders by governmental authorities, judicial precedents, decisions by various commissions and agencies of the governments, etc.   
  • The Legal Environment of business not only provides smooth governance of business but also includes a safe pathway for the businesses to achieve their target which is profit making. Modern-day, there has been an enormous growth in the legal environment structure on the international level, which has created strong compliance in the legal environment of business.

The establishment of the World Trade Organisation in the year 1995 has been a paramount pillar of the legal structure of the business environment. In India, the legal environment is very strong as there are several legislation and regulations and several bodies to take care of the different aspects of the business. It not only benefits the business but acts as a twofold regime. That is, it also takes care of the other stakeholders, such as citizens, by generating employment, Corporate Social Responsibility (CSR), and consumers by providing a fair and healthy market and a strong dispute resolution mechanism. 

Different aspects of the Legal Environment of Business

The different aspects that come under the Legal Environment of Business are laws on taxation, anti-trust law, laws on different types of business (such laws on the company, partnerships, partnership firms, limited liability partnerships, sole-proprietorships, Hindu Undivided Family business, etc.), consumer law, labor laws, environmental laws, international law related to trade and business, laws on mergers and acquisitions, contractual laws, health, and safety promotional laws, intellectual property laws, etc. All these laws play a vital role in the legal environment of the business.

Let us now see the business activities and laws present in the context of India. 

  1. For the establishment of a business entity, there are Companies Act, 2013 for the establishment of companies. The Limited Liabilities Partnership Act, 2008, for the establishment of LLP, and the Partnership Act 1932, for the establishment of a partnership form of business. 
  2. For recruitment and employment-related laws, there are several Labour Laws and Codes, such as the Industrial Dispute Act of 1947, the Standing Orders Act, the Codes on Wages, Occupational Hazards, Maternity Benefits, the Trade Union Act, etc.
  3. For safeguarding business ideas, marketing and brands, there are the Patent Act of 1970, the Copyright Act of 1957, and the Trademark Act of 1999.
  4. For acquiring resources, raw materials, and other assets of the business, there is a law on the property which include the Contract Act and Transfer of Property Act.
  5. For environmental protection, there are Air and Water Act.
  6. For consumer safety, there are Consumer Protection Act 2019, Essential Commodities Act 1955, etc.
  7. For Anti-trust law, there is the Competition Act of 2002

Impact of the Legal Environment on Business

As discussed above, a Legal Environment of Business provides an indispensable factor for the flourishing and smooth running of the business.

If we look around the world and divide the world into developed, developing, and least developed nations, the role of businesses plays a vital role in tagging the nations as developed, developing, and least developed, and all this depends upon the legal environment. Countries like the United States, England, France, Korea, and Japan comes under the category of developed nation reason being a positive legal environment. 

The Legal Environment of Business we see today is not the same as that used to be in the pre-1990s. In the year 1991, India opened its boundaries for the outer business to enter India. India adopted economic liberalization, privatization, and globalization. For this purpose, the law-making bodies came up with several new laws and legislation to deal with the current situation post-1990s.

The establishment of competition law in the year 2002, which repealed the previous law on monopolies, that is, the MRTP Act, 1969, is the best example of a suitable legal business environment; the law provides safeguards from monopolies and provides fair and safe trade among competitors.

The current development in the year 2015 in India by the Hon’ble Prime Minister Narendra Modi, the policy on start-ups has given a high growth to potential start-ups, and this favorable legal environment has led to 105+ unicorns existing today.

Conclusion

A proper Legal Environment of Business helps a business ecosystem to not only flourish but carry out its activities smoothly; this does not mean a free hand from the government but a balanced ecosystem. Even a strict legal environment or a loose legal environment may hamper the overall business activities. To know more about the Legal Environment of Business, consult a company lawyer online.

The Legal Environment of Business not only provides smooth governance of business but also includes a safe pathway for the businesses to achieve their target, which is profit making. To know more about the legal environment of business, get online legal advice.

Nikky Jha

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