The legal environment refers to the framework of laws, regulations, and court decisions intended to encourage, guide, and control business activities. Some are designed to protect workers, consumers, and communities. Others are designed to regulate the behavior of managers and their subordinates in business and other enterprise.
The term ‘ legal environment’ of a business refers to the strategies adopted by any government to help, manage or constrain the business ecosystem of the country.
legal environment of a business includes-
- Various legislations enacted, amended or repealed by the government,
- administrative orders proclaimed by government authorities,
- decisions issued by various commissions and agencies of the central, state or local government as well as judicial activities, and
- The legal environment includes various laws regulating business activities like Companies Act, Consumer Protection Act, and many other such legislations, policies relating to licensing and approvals, foreign trade etc.
In every country, the government frames its legal system according to its definite purposes and priorities in order to regulate the business ecosystem of the country. The government may also limit the business activities by regulations. These Factors, in turn, create the legal environment of a business.
The Legal environment of a business indicates a twofold purpose set by the government which help the business to flourish which, in turn, benefits the citizens either by generation of employment or by any service. In negative connotation, the legal environment especially in socialist or mixed economies may constrain or hinder the growth of the business.
Business Activities and The Related Laws
To perform any business activity, it is mandatory to keep the related law in mind. A brief generalised insight of the types of laws associated with any particular business activity is mentioned below in the form of chart:
| Business activity | Relevant important laws |
| Establishing a business organization | Company laws determining the legal entities of any business |
| Acquiring resources or raw materials and business operations | Property laws, Laws relating to Contract, Environment protections laws |
| Marketing plans and Brand Recognition | Laws relating to trademark and copyright |
| Hiring employees | Labors laws, laws relating to employment, health and safety law |
| Offering services to Customers and selling outputs | Consumer protection laws, Laws of contract |
| Growth of business | Laws governing mergers and acquisitions, Antitrust laws |
Benefits of Studying Legal Environment of a Business
It is vital for the management of any business organization or enterprise to obey the existing laws of the land. Consequently, a proper and adequate knowledge of the rules and regulations framed by the the government acts as a pre-requisite for improving the business performance. Non- Compliance of these can land the business in trouble and may spoil the growing prospects of it.
The benefits of studying the legal environment of a business are,
- It helps to decide how to perform the business properly.
- Proper studying of the legal environment helps to maximize the margin of the profit.
- It aids in planning a Proper business strategy.
- The studying of legal environment contributes to successful business.
- To protect rights and interest of business community
- To know the economic related laws and policies of the country
- To deliver justice and settle business related disputes