Legal Environment of Business

Legal Environment of Business in India

Table of Contents:-

  • Legal Environment of Business
  • Legal Factors Affecting Business
  • Major Impact of Legal Environment on Business
  • Major Laws Affecting the Legal Environment on Business

Legal Environment of Business 

Legal Environment of Business – All business-related activities are largely influenced by the Central Government, the State Government and other local bodies. All these regulatory bodies are concerned with formulating legislation on matters like employment opportunities, health and safety of the workers, location of the workplace, the environmental impact of the plant (emission of various gases and chemicals in the atmosphere), the noise involved during the working of plant and machinery, etc. Routine business operations are directly affected by these laws and regulations. Significantly, actions taken by these governmental bodies impact the strategic choices of business enterprises. It can directly impact business opportunities by either increasing or decreasing them.

The regular updates and changes brought in the governmental policies may offer new business ideas and opportunities to organisations. By analysing the environmental impacts and accordingly implementing positive changes, a business organisation can increase its business. This also proves helpful to the government, as it checks the growth of such industries which causes harm to the environment. A unique law system is an integral part of every country. Business organisations that have a global presence in the international market should adhere to the legal and other regulatory provisions and policies related to the environmental concerns of the host countries.

The business organisation should keep in consideration the various judicial norms followed in the host country and the total time involved in giving the final verdict regarding the issue. Different countries have different levels of judicial effectiveness. The decision was taken by the organisations regarding making investments, and doing business operations in a particular country majorly depends on the legal environment prevailing in that country. Such a legal environment also affects the nature of the business that a business organisation would undertake while operating in a particular country.

Legal Factors Affecting Business

The legal forces that influence the business are as follows:

1) Provisions of the Constitution

The different operations of a business enterprise influenced the provisions made under the Indian Constitution. These provisions of the constitution may include the directive principles, fundamental rights of the citizens, the legislative powers of the central and state governments, etc.

2) Judicial Decisions

The prime aim of every judiciary system is to protect the interest and concern of the public (common man). This is achieved by ensuring that both the government and the legislature serve the interests of the public as per the constitution of India. Meanwhile, different relevant decisions concerning trade and industry are made by the judicial system, and consequently, many business activities are largely affected by these decisions.

3) Law Administrators

The Indian judiciary system comprises different law enforcement agencies which are directed towards confirming the execution of laws, and the judgment of the courts of law. Law administration is managed by some of the crucial players including lawyers, government agencies, police, jail and other regulatory bodies.

Major Impact of Legal Environment on Business

Management of multinational companies should make a comprehensive study of the legal systems of the different countries where they intend to conduct their business activities. Moreover, they should also acquaint themselves with the knowledge about the nature of domestic and international legal professions and relationships shared by these countries. Different countries follow different legal systems relating to common law, civil law, theocratic law, judicial law, etc.

Hence, the legal environment has various significant influences on business, which are as follows

1) Deregulation

Often, it is observed that the government withdraws some regulations from certain sectors of the industry, and encourages new companies to enter the market. These changes in the regulations can lead to an increase in the level of competition in that particular sector along with a reduction in the profit ratios of the firmly established business enterprises. For example, due to the allowance of Foreign Direct Investment (FDI) in the infrastructure sector. various new players have emerged in the market, creating tough competition among the various players.

2) Globalisation

Globalisation influences the legal environment of the country by creating the need to bring changes according to the prevailing international conditions. These changes further affect business operations. Globalisation creates a challenging situation for Indian companies by creating pressure to stand hand in hand with different global competitors. Companies are heavily reliant on several sources of competitive advantage to sustain their markets, due to distinctions in the rules and regulations of global markets as compared to domestic markets. For example, the process of entry of international firms in India is accelerated due to the withdrawal of controls over foreign exchange and liberalisation of FDI in equity.

3) Environment Protection Norms

The natural environment or nature is protected with the help of the provisions and norms formulated under the legal environment. The operations and functions of various firms have been defined or influenced by numerous acts and laws passed by the State and Central Government of India to protect the natural environment. These laws and guidelines have an impact on the production and marketing policies of various firms. For example, firms need to design new and innovative production technologies, if government introduces restrictions on the previous production techniques used by them.

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Major Laws Affecting the Legal Environment on Business

Components of the legal environment comprise all those sets of rules, regulations and laws which affect business enterprises and their activities. All business enterprises need to function by the legal framework formulated in the country.

The major laws affecting business in India are as follows:

Legal Environment of Business

  1. Companies Act, 1956
  2. Foreign Exchange Management Act, 1999
  3. The Factories Act, 1948
  4. Industrial Dispute Act, 1972
  5. Industries (Development and Regulation) Act, 1951
  6. Monopolies and Restrictive Trade Practices Act, 1969
  7. Bureau of Indian Standards Act, 1986
  8. Consumer Protection Act, 1986
  9. Environment Protection Act, 1986
  10. Competition Act, 2002

1) Companies Act, 1956

Consumer Protection Act 1986 was introduced in the year 1956 by the Parliament of India, which permitted the establishment of companies by following the process of registration and deployed the responsibilities and duties of companies, their secretaries, directors, etc. With the help of the Ministry of Corporate Affairs and the Offices of Registrar of Companies (ROC), Company Law Board, Director of Inspection, and Public Trustees. Official Liquidators, etc., the Government of India administers the Companies Act 1956. All the matters related to the incorporation of new companies, and the administration of existing firms are managed by the Registrar of Companies.

2) Foreign Exchange Management Act, 1999

FEMA, 1999 is an Act which deals with the systematic development and amendment of laws relating to the foreign exchange market in India. This Act emphasises the promotion of external trade and payments as well as organised growth and maintenance of India’s foreign exchange market.

3) The Factories Act, 1948

Fundamentally. Factories Act, of 1948 has been developed to safeguard the health and security of labourers as well as children. Only the factories employing 100 or more workers were entitled to follow this Act.

4) Industrial Dispute Act, 1972

This Act specifies the conditions under which a business unit can be shut down, and other related issues concerning industrial employers and employees. It also specifies provisions regarding situations such as illegal and unlawful strikes, lock-outs,  retrenchment, lay-offs, dismissing employees, etc.

5) Industries (Development and Regulation) Act, 1951

The Central Government developed this Act for developing and regulating industries in India. The primary aim of the Act is to control the pattern and direction of industrial development, to regulate the various industrial operations, performances and outcomes of industrial units for the welfare of the public, and to take essential measures for the growth of industries in India.

6) Monopolies and Restrictive Trade Practices Act, 1969

This Act operates to ensure that the working of the economic system does not cause a concentration of economic power on one hand. It was developed for controlling and prohibiting monopolistic and restrictive trade practices, and other related matters.

7) Bureau of Indian Standards Act, 1986

The Government of India enacted this Act to establish a Bureau for marking and quality certification of goods, for cordial development of activities of standardisation and other related matters.

8) Consumer Protection Act, 1986

This Act was passed in 1986 by the Parliament of India to safeguard the interests of consumers in India. It handles the matters related to the settlement of consumer disputes and so on, by making provisions for setting up consumer councils and other authorities which help in doing the same.

9) Environment Protection Act, 1986

This Act empowers the Central Government of India to take necessary steps to deal with environmental pollution and protect and maintain the environment. It also gives the power to send written orders to any officer or individual for violating any provisions of the Act. These powers include prohibiting, regulating or closing any industry or its operation.

10) Competition Act, 2002

According to the Competition Act, of 2002, Indian traders should not conduct any activity which encourages monopoly. An activity related to production, distribution or pricing will be considered void if it is found that it promotes monopoly and is going against the Act. This Act is very beneficial for setting up a healthy competitive environment in the country.

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