Legal Environment of Business
Article explores the legal environments that directly impact today's businesses and corporations by providing an overview of the major legal realms and legal structures that impact business and business practices. The role law plays in the world of business and its implications to the business professional, as well as, the major sources of law and their intent to either control, regulate, or assist current business practices.
Keywords American Legal system; Business Law; Constitution; Procedural Law; Securities Exchange Act; Statutes; UCC
Law: The Legal Environment of Business
The legal environment of business refers to the code of conduct that defines the legal boundaries for business activity. To understand these boundaries, it is essential to first have a basic understanding of the law and how it affects businesses and business practices. The nature of business spans over a number of legal realms, all of which are continuously influenced by the needs and demands of the business community, consumers, and the government. Each has a distinct stake and voice in this vibrant legal environment.
Nature of Law
The study of the legal environment of business encompasses numerous approaches and philosophical theories. The exploration of what law is and how it is defined has been examined by numerous legal philosophers.
The legal traditionalists view law as a body of principles and rules that courts `utilize when deciding disputes. The traditionalist approach is steeped in the belief that the basic constructs of right and wrong are fixated even though society is continuously changing its beliefs.
The environmental approach views law as an arm of societal control that must continuously reflect the current society's moral constructs through the enforcement of rules, regulations, and laws. This approach is much broader in scope, since the law is an institution that reflects the societal need for social order.
Sociological Jurisprudence Theorists
Sociological jurisprudence theorists profess that society ultimately shapes and molds the law and the mechanisms for its enforcement. This school of thought views the legal system and the law as a means of providing an orderly, predictable system of social order, change, and legal reform.
These theories lead to similar conclusions; the primary function of law is to maintain social, political, and economic stability, while simultaneously balancing the need and ability to implement change. To accomplish this successfully, laws have been categorically classified.
Classifications of Law
To make sense out of huge body of information, laws are placed into various categories. Although a number of classifications are possible, the most useful categories utilized are:
- Substantive and Procedural
- Civil and Criminal
Basic to the understanding of these classifications are the terms right and duty.
A right is the ability of a person with the help of the law, to demand someone else to perform or to cease engaging in a certain activity.
A duty on the other hand, is a commitment placed upon a person to engage in or desist engaging in a certain activity. These two concepts are correlatives, meaning that no right can rest upon one person without a corresponding duty resting upon some other person.
Substantive law includes all those laws that define, regulate, and create legal rights and obligations. A rule stating that promises are enforced only where each party receives something of value from the other party is part substantive law. An example of this would be business contracts and contract obligations.
Procedural law, on the other hand, establishes the methods for enforcing the rights that are established by substantive law. For example, questions about how a lawsuit should begin, what papers need to be filed, which court the suit should go to, which witnesses can be called, and so on are all questions of procedural law.
Essentially, substantive law relays our rights and entitlements under the law, while procedural law delineates our legal obligations and duties that need to be undertaken to obtain the benefits of those rights.
Civil law refers to the laws that define the duties existing between individuals or legal entities (meaning corporations). This body of law (better known as torts) deals with the infringement of one person or legal entity on the legally recognized rights of another. Civil law violations appear in business in numerous ways. It is the basis of employment violations, breaches of contracts, product liability and copyright infringement.
Criminal law differs from civil law in that it is an act prohibited by law for the protection of the public at large. Criminal violations in business occur when individuals, in a position of authority, commit criminal actions either against individuals, the company, or the consumer.
“Under the doctrine of respondent superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions were within the scope of his/her duties and were intended, at least in part, to benefit the corporation” (Michel, 2003, p.1).
These types of criminal acts are often referred to as white collar crimes. This catch-all phrase was originally coined by Edwin Sutherland in 1939. Sutherland defined it as "a crime committed by a person of respectability and high social status in the course of his occupation." White-collar crimes usually involve fraud, bankruptcy fraud, bribery, insider trading, embezzlement, computer crime, medical crime, public corruption, identity theft, environmental crime, pension fund crime, RICO crimes, consumer fraud, occupational crime, securities fraud, financial fraud, and forgery.
Sources of Law
With a basic understanding of the classifications of law, the next question that comes to mind is what are the sources of law and where are laws found? Laws derive from federal and state constitutions, federal treaties, interstate compacts, federal and state statutes and executive orders, ordinances of municipal governments, the rules and regulations of federal and state administrative agencies, and federal and state court decisions.
The United States Constitution
The U.S. Constitution (adopted 1787, ratified 1788) is considered the "supreme law." A law in violation of the Constitution, no matter what the source, will not be enforced by the courts. Similarly, the state constitutions are supreme within their respective borders, though keep in mind that all law in the United States is subordinate to the Federal Constitution. No law, Federal or State, is valid if it is in violation of the Federal Constitution.
The U.S. Constitution also creates and limits the power of the government. Examples...
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