This article has been written by Kajal Arora, pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho and edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
Introduction
Business law is the study of laws that govern the formation, rights, relations, conduct, dissolution, etc., of individuals and business corporations around the globe. Business law is synonymously used with commercial or corporate law as well. The primary objective behind the business law is to provide a regulatory framework on the conduct of business for these corporations, the practises followed, ways to protect the interests of shareholders, ensure proper implementation of laws, ensure validity of business transactions, ensure healthy competition, etc.
No matter the type, work, size, or location, every company engaged in some business has to comply with the business laws made applicable to the particular jurisdiction. It is with proper implementation of business laws that an economy can thrive.
As per a recent report, there are around 334 million businesses transpiring across the world, with more than 1.5 million of them coming up in India alone. With several businesses cropping up every single second in the world, understanding how these businesses function around the world assumes even greater significance.
Business laws in India
Businesses in India are regulated by a set of laws. The major business laws in India are as follows:
- The Companies Act, 2013
- The Indian Contract Act, 1872
- The Insolvency and Bankruptcy Code, 2016
- The Income Tax Act, 1961
- The Partnership Act, 1932
- The Goods and Services Tax, 2017
- The Minimum Wages Act, 1948
- The Consumer Protection Act, 2019
- The Limitation Act, 1963
- The Specific Relief Act, 1963
- The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
- The Patents Act, 1970
- The Trade Marks Act, 1999
- The Designs Act, 2000
- The Copyrights Act, 1957
Functions of business law
Business law governs countless aspects of the functioning of any business. The functions of business law can be summarised as follows:
Incorporation
This feature of business law is the most basic one. It describes the incorporation laws for businesses according to the jurisdiction. In India, the incorporation laws are dealt with under the Companies Act, 2013. To initiate the process of incorporating a company in India, you first have to get the name approved by the registrar of companies. Then draft a Memorandum of Association and Articles of Association. After approval of the relevant documents, the company is granted a certificate of incorporation in India.
A deep understanding of business laws helps to set up business in a nation and then expand across the globe. There are a plethora of formalities to be completed in order for a business to start functioning. Since the law sets up the formalities that need to be completed for the business to be set up, it becomes easier to follow through with the process. Even a person from a non-legal background can understand the complex procedures easily.
Transactions
Business law is fairly wide, and it includes within its ambit every branch of law that directly or indirectly deals with any aspect of the functioning of a company. The law helps to protect the interests of concerned parties, including the shareholders, debtors, and creditors of the company. For example, India has these laws to ensure the betterment of its employees:
The Minimum Wages Act, 1948, fixes the minimum wage rate for employees, and the employer can’t deny his responsibility for paying him that minimum wage rate.
The Industrial Disputes Act, 1947, ensures that fair terms and conditions are met between the employer and the employee in case of any dispute.
The Maternity Benefits Act, 1961, as the name itself suggests, is to provide monetary benefits to female employees who can no longer continue employment because of their pregnancy.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 aims to prevent any kind of sexual harassment that might occur in the workplace. Business laws make the daily transactions in a company much smoother and reduce the possibility of conflicts between the interested parties. It regulates the internal activities of the business.
Other than that, all the intricate details regarding the working of a company and its daily transactions are well covered under the Companies Act, 2013. These are as follows:
- Establishment of company,
- Constitution of Board of directors,
- Capital structure,
- Conduct of the shareholders of the company,
- Meetings of the company,
- Dissolution and much more.
Regulatory compliance
A good understanding of business laws also allows for better compliance with the regulatory framework that any business is expected to comply with. Depending on the jurisdiction where the business is situated, there are a slew of laws that need to be abided by.
Corporate governance
It is only business laws that set up the framework for corporate governance in a company. It outlines the roles and responsibilities of the directors and shareholders of the company. With proper corporate governance mechanisms in place, investors can make investments in the business with much more confidence.
Modern businesses have started focusing more on the concept of corporate social responsibility, which simply encourages companies that earn well to step up to their social responsibilities. Businesses have started getting actively involved in community development, environment protection, philanthropy, and achieving sustainable development goals, and it imposes certain accountability on these huge multimillion-dollar companies to do their bit for societal development.
Rights of shareholders
Business law also plays a vital role in protecting the interests of shareholders in a company. It is essential to deal with issues concerning minority shareholders, constitutional documents, and others. The business laws, specifically the Companies Act, 2013, grant voting rights to shareholders, impose duties on directors and managers, and prevent any oppression or disturbance in the dealings of a company.
Contracts
Every corporation survives on well-drafted contracts. A precisely drafted contract offers certainty, security, and stability to the parties. It lays down all the required formalities, the rights and obligations of the parties involved, the purpose of the contract, the time period for performance of the work, the consequences of a breach, the liabilities of the parties, and even the termination of the agreement. These well-articulated documents go on to ensure a seamless transaction for the company and a plethora of other parties.
Consumer law
Every business is supposed to cater to the needs of consumers, and ensuring the best interests of consumers is what keeps any business going. It sets guidelines for quantity, quality of products, safety standards, advertising regulations, and the liability of manufacturers and sellers as well. In India, all these aspects are governed by the Consumer Protection Act, 2019. It grants certain rights to consumers and imposes liabilities on the sellers.
Dispute resolution
These disputes can be resolved amicably and cordially through specific contracts enacted before. The contracts mention what procedures have to be followed in case a dispute arises. For example, a majority of contracts in India have a clause that, if any dispute arises, it shall be resolved as per the provisions of the Arbitration and Conciliation Act, 1996.
A lot of corporations around the world prefer settling disputes rather than prolonging them in years of courtroom battles. So, alternative modes of dispute resolution, such as mediation and arbitration, are preferred over litigation.
Intellectual property
Business laws also cover the laws concerning the intellectual property rights that a company acquires over time. How a company acquires these rights, how it licences these rights, and how it earns through these rights are all governed by business laws. It protects the business ideas that may arise and assures protection for the intangible assets of the business firm. It fosters creativity and grants the creator exclusive rights to his ideas. For example, India has the Patents Act, 1970; the Trade Marks Act, 1999; the Designs Act, 2000; and the Copyrights Act, 1957 to govern the grant of intellectual property in India.
Competition law
Business laws also cover, within their radius, competition and antitrust laws. These laws prevent the establishment of monopolies and ensure fair competition among businesses. This also covers, within its ambit, the rules dealing with the mergers and acquisitions of the companies. The Competition Act, 2002, governs all aspects of the competition laws.
Insolvency and bankruptcy law
Business laws also provide for a mechanism to handle situations where people get insolvent or businesses go bankrupt. It provides for an elaborate process of insolvency and bankruptcy, ensures that the rights of creditors aren’t affected, appoints liquidators or trustees to oversee these proceedings, and allows a smooth transition.
Employment law
No business can exist without the efforts of its employees, who work hard in their respective roles to keep the company functioning. Employment laws govern the relationship between the employer and the employees. It sets standards for minimum work hours, safety regulations, the rights of the workers, the minimum wage to be provided, and ensures that there is no discrimination amongst the workers. In the Indian setting, the applicability of the Workmen’s Compensation Act, 1923; the Prevention of Sexual Harassment Act, 2013; the Payment of Wages Act, 1936, etc., must be complied with.
Taxation
It entails taxation systems that the business needs to abide by. Another facet of business law dictates what taxes must be paid by the company and when. The taxation laws govern the taxation liability imposed on a company and any tax exemptions. If a company expands its business to another country, it needs to abide by different taxation laws. Neglecting these laws may result in huge penalties being imposed on the company. In India, the major tax law is the Income Tax Act, 1961.
Environment law
Another aspect of business laws includes environmental laws. These laws impact the role of business in the environment. Parts of business laws also regulate the use of chemicals and fertilisers by the business, waste management, resources utilisation, adopting eco-friendly approaches, etc. The Environment (Protection) Act, 1986 directs the actions to be taken by these businesses to control air, water, and soil pollution. It goes on to impose liabilities on these corporations for their acts.
Technology law
Gone are the days when business laws could be studied in isolation. To get a clearer understanding of business laws, one also needs to be updated on the technology laws that are cropping up. Businesses aren’t carried out the traditional way now. With new software and technologies coming up all the time, laws to regulate them are much needed. The Information Technology Act, 2000, regulates the technology law in India.
Privacy law
The right to maintain privacy has been widely recognised as a basic human right across countries, even as a fundamental right in our country. For the business to function, it needs the personal information of its consumers, but how they acquire, retain and dispose of that information needs to be governed by separate laws. So, businesses also need to delve into privacy laws to safeguard the right to privacy of individuals, no matter where they are.
Conclusion
The importance of being vigilant about business laws can’t be undermined. They help corporations establish themselves, maintain proper order, get into contracts and enforce them, and get hold of other aspects of business laws, as have been described above. Business laws provide a legal framework for all commercial transactions, safeguarding the property of the company, ensuring hassle-free transactions, and protecting the interests of the company itself. Business law is a complex but crucial field of law that keeps changing drastically. No matter the size or type of business, it is mandatory for every business to comprehend these laws and act in accordance with them. It is only then that a business can flourish in its true sense.
References
- https://www.businessdit.com/how-many-businesses-are-there-in-the-world/
- https://squareup.com/us/en/the-bottom-line/operating-your-business/business-laws
- https://www.wallstreetmojo.com/business-law/#:~:text=Business%20law%2C%20als o%20called%20commercial,%2C%20sale%2C%20bankruptcy%2C%20etc.
- https://www.linkedin.com/pulse/7-functions-business-law-the-hijabi-mentorship-progr am/
- https://www.upcounsel.com/purposes-and-functions-of-business-law
- https://talkforbiz.com/definition-functions-and-the-importance-of-business-law/
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