SUBJECT: LEGAL ASPECTS OF BUSINESS

ASSIGNMENT on What is the need for knowledge of law? How commercial law helps smooth functioning of business?

Submitted By: Monika Bansal

Under the Guidance of: Mr. Anand

BHARATI VIDYAPEETH DEEMED UNIVERSITY INSTITUTE OF MANAGEMENT & RESEARCH, NEW DELHI An ISO 9001:2008 Certified Institute NAAC Accredited Grade A University Ranked in Top 50 B-schools in India By Business India CRISIL Grading MBA Programme A* - National Level, A**- State Level Recipient of B-school leadership award from Star News

Law is a system of rules and guidelines which are enforced through social institutions to govern behavior. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people.

The functions of law Law can be said to perform four different functions, each of which is of huge importance to our welfare. (1) Defending us from evil The first and most basic function of law is to defend us from evil that is, those who would seek to harm us for no good reason. This function of law underlies 20th century developments in International Law such as the Nuremberg Trials and the creation of the International Criminal Court. (2) Promoting the common good Law is not just concerned with bringing evil people to account for their actions. A community made up of people who bear no ill-will to anyone else and are simply concerned to pursue their own self-interest needs law because there are situations where if everyone pursues their own selfinterest, everyone will be worse off than they would have been if they acted differently. (This is the reverse of the invisible hand phenomenon where if everyone pursues their own self-interest, everyone in the community is made better off, as if everyones actions were guided by an invisible hand to achieve that end.) So a community of self-interested actors needs law: (i) to solve Prisoners dilemma situations; (ii) to distribute into private hands property that would otherwise be exploited by everyone, thereby avoiding a tragedy of the commons situation arising; (iii) to prevent people acting on their natural desire to extract an eye for an eye in revenge for actual or perceived wrongs that they have suffered at other peoples hands. (3) Resolving disputes over limited resources

As every family knows, in any community there will always be disputes over who should have what of a limited number of resources. Law is needed to resolve these disputes, as exemplified by the famous story of the Judgment of Solomon. (4) Encouraging people to do the right thing It was thought even from classical times that law performed a fourth function that of encouraging and helping people to do the right thing. For example, Aristotle (384 BC 322 BC) argued that people needed the discipline of law to habituate them into doing the right thing, from which standpoint they could then appreciate why doing the right thing was the right thing to do. Up until the 20th century, this view of law was accepted by law makers, with the result that the UK legal system contained a large number of morals laws that is, laws that were designed purely and simply to stop people acting immorally, according to the lights of Christian teaching on what counted as immoral behavior. However, in the 20th century, the harm principle propounded by John Stuart Mill in his book On Liberty, according to which the law should not sanction people for acting immorally unless their conduct involved some harm to others, gained more and more popularity, and resulted in the abolition of large numbers of morals laws. These trends triggered what is now known as the Hart-Devlin debate over the extent to which it is legitimate for the law to enforce morality. Lord Devlin at the time, a judge in the House of Lords, the highest court in the land argued that law should enforce morality so as to preserve the cohesiveness of society. Professor H.L.A. Hart at the time, the most famous legal philosopher in the world based his position squarely on Mills harm principle, though subject to the caveats that the law might legitimately prevent someone acting immorally if doing so involved harm to him or would cause offence to others. Harts views are set out in his widely read book Law, Liberty and Morality. Hart is thought to have won the debate but his concessions that it might be legitimate to make it illegal for someone to engage in immoral behavior that will (i) harm himself or (ii) offend others, seem to make little sense. The same point can be made about those morals laws that survived the 20th century cull: if law does not have a role to play in encouraging us to do the right thing, why is it illegal to have sex in public, or to have sex with animals, or to dig up dead bodies, or to take hallucinogenic drugs, or to help someone kill themselves?

Why Do We Need the Law? Almost everything we do is governed by some set of rules. There are rules for games, for social clubs, for sports and for adults in the workplace. There are also rules imposed by morality and custom that play an important role in telling us what we should and should not do. However, some rules -- those made by the state or the courts -- are called "laws". Laws resemble morality because they are designed to control or alter our behavior. But unlike rules of morality, laws are enforced by the courts; if you break a law -- whether you like that law or not -- you may be forced to pay a fine, pay damages, or go to prison. If we did not live in a structured society with other people, laws would not be necessary. We would simply do as we please, with little regard for others. But ever since individuals began to associate with other people -- to live in society --laws have been the glue that has kept society together. For example, the law in Canada states that we must drive our cars on the right-hand side of a two-way street. If people were allowed to choose at random which side of the street to drive on, driving would be dangerous and chaotic. Laws regulating our business affairs help to ensure that people keep their promises. Laws against criminal conduct help to safeguard our personal property and our lives. Even in a well-ordered society, people have disagreements and conflicts arise. The law must provide a way to resolve these disputes peacefully. If two people claim to own the same piece of property, we do not want the matter settled by a duel: we turn to the law and to institutions like the courts to decide who the real owner is and to make sure that the real owner's rights are respected. We need law, then, to ensure a safe and peaceful society in which individuals' rights are respected. But we expect even more from our law. Some totalitarian governments have cruel and arbitrary laws, enforced by police forces free to arrest and punish people without trial. Strong-arm tactics may provide a great deal of order, but we reject this form of control. The Canadian legal system respects individual rights while, at the same time, ensuring that society operates in an orderly manner. In Canada, we also believe in the Rule of Law, which means that the law applies to every person, including members of the police and other public officials, who must carry out their public duties in accordance with the law.

Goals of the Law In our society, laws are not only designed to govern our conduct: they are also intended to give effect to social policies. For example, some laws provide for benefits when workers are injured on the job, for health care, as well as for loans to students who otherwise might not be able to go to university. Another goal of the law is fairness. This means that the law should recognize and protect certain basic individual rights and freedoms, such as liberty and equality. The law also serves to ensure that strong groups and individuals do not use their powerful positions in society to take unfair advantage of weaker individuals. However, despite the best intentions, laws are sometimes created that people later recognize as being unjust or unfair. In a democratic society like Canada, laws are not carved in stone, but must reflect the changing needs of society. In a democracy, anyone who feels that a particular law is flawed has the right to speak out publicly and to seek to change the law by lawful means.

The System of Law and Justice The law is a set of rules for society, designed to protect basic rights and freedoms, and to treat everyone fairly. These rules can be divided into two basic categories: public law and private law. Public Law Public law deals with matters that affect society as a whole. It includes areas of the law that are known as criminal, constitutional and administrative law. These are the laws that deal with the relationship between the individual and the state, or among jurisdictions. For example, if someone breaks a criminal law, it is regarded as a wrong against society as a whole, and the state takes steps to prosecute the offender. Private Law Private law, on the other hand, deals with the relationships between individuals in society and is used primarily to settle private disputes. Private law deals with such matters as

contracts, property ownership, the rights and obligations of family members, and damage to one's person or property caused by others. When one individual sues another over some private dispute, this is a matter for private law. Private suits are also called "civil" suits. Of course, there is more to Canada's system of law and justice than the laws themselves. Laws must be enforced, interpreted and applied if they are to be effective, and the legal system includes a number of institutions to carry out these duties. For example, we have police forces to ensure that the law is enforced. We have courts to interpret both private and public laws in specific cases, and to impose remedies, "sanctions" or penalties. Persons found guilty by a court of a criminal act can, for example, be discharged, placed on probation, or sentenced to a fine or a period of imprisonment. Persons who violate rules of private law, such as failing to perform a contract, may be ordered to pay compensation and their property or salaries may be seized if they refuse to pay. To understand Canada's legal system, we need to look at the way law is applied in practice -- at what happens to a person who violates a law. But first, we should examine our legal inheritance: just where did "the law" come from?

Commercial law (also known as business law, which covers also corporate law) is the body of law that governs business and commercial transactions. It is often considered to be a branch of civil law and deals with issues of both private law and public law. Commercial law includes within its compass such titles as principal and agent; carriage by land and sea; merchant shipping; guarantee; marine, fire, life, and accident insurance; bills of exchange and partnership. It can also be understood to regulate corporate contracts, hiring practices, and the manufacture and sales of consumer goods. Many countries have adopted civil codes that contain comprehensive statements of their commercial law. In the United States, commercial law is the province of both the United States Congress, under its power to regulate interstate commerce, and the states, under their police power. Efforts have been made to create a unified body of commercial law in the United States; the most successful of these attempts has resulted in the general adoption of the Uniform Commercial Code, which has been adopted in all 50 states (with some modification by state legislatures), the District of Columbia, and the U.S. territories. Various regulatory schemes control how commerce is conducted, particularly vis-a-vis employees and customers. Privacy laws, safety laws (e.g., the Occupational Safety and Health Act in the United States), and food and drug laws are some examples. Commercial law is considered very important within any state because it maintains peace, security and order contained by the economy. Commercial law is essential for following the moral values and monitoring the changing requirements of an economy especially a developing economy. Commercial law is also prearranged as business law and it gives a body of law which helps in governing the businesses. Commercial law also gives a regulatory control over the commercial transactions and help in saving the interests of businesses and society.

What Is the Function of Law in Business?

In a free market system, business law plays an especially important function in the business environment. Companies rely on the enforcement of law to protect their business interests while conducting operations. Federal, state and local court systems can help companies enforce contractual obligations and ensure that the company does not face frivolous lawsuits from consumers, suppliers and vendors.

Facts
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While most companies traditionally relied on external legal help for their business, changes in the business environment have made it possible for businesses to hire internal legal counsel. Prepaid legal services have also made it possible for companies to keep lawyers on retainer for business purposes. These changes in the business environment have increased business costs for many companies.

Considerations
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Companies have begun using arbitration as an alternative form of business law. Arbitration allows the company to meet with other parties and discuss a dispute with an arbiter, attempting to get a legally binding agreement. Arbitration agreements are usually seen as final opinions on the legal issues involving the parties in the arbitration process. Companies often use arbitration when dealing with legal matters involving employees because it cuts the costs of doing business and shortens the amount of time spent on legal matters.

Function
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Companies use legal advice when making important business decisions to avoid potential legal liabilities when selling goods and services. Business law also helps companies generate more sales through the use of contracts or agreements with other companies. These agreements may be needed to ensure that proper pricing and customer service is maintained during the business relationship. Changes to

previous agreements or contracts may also need to be reviewed by the company's legal counsel to ensure it meets current contract law.

Benefits
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Companies that protect themselves are less likely to face stiff financial penalties from the judicial system. Proper legal advice can also help companies create a competitive edge over their competitors in the market place. Business law counsel can also help companies avoid negative interactions with government regulators or government taxing authorities.

Warning
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Creating a strict legal environment for business operations may cause companies to lose consumers who may view the use of legal counsel as unnecessary. Consumers usually do not like companies that are quick to use legal means for achieving business goals. Increasing negative goodwill with consumers can limit a company's ability to generate sales revenues and profits from the sales of goods and services