Introduction to Business Law

Role of Law

Purposes of Law

The purposes of law are to maintain order, influence conduct, honor expectations, promote equality, and offer compromises. Laws regulate activities by imposing duties and responsibilities prescribed by the controlling authority and have binding legal force.

Laws govern the U.S. legal system. The federal (national) government and the states create laws. The executive branch of the federal government and of the individual states enforce these laws, and courts interpret them.

Jurisprudence is the science or philosophy of law. There are various schools of jurisprudence that seek to determine what the source of law is and how it should be interpreted. For example, the natural law school says that God is the source of law. The positivist school finds that the sovereign (also called a ruler or ruling body) is the source of law. The sociological school says that the source of law is contemporary community opinion and customs. The American realist school says that the actors in the legal system are the source of law.

Regardless of where one believes law comes from, law is the foundation from which individuals, businesses, and government agencies conduct themselves in relation to one another. The purposes of law are to maintain order, influence conduct, honor expectations, promote equality, and offer compromises. Without law, there would be no standard against which to judge anyone's actions and no true consequences for those actions. Laws form the foundation of a civilized society. Without laws, modern government could not function properly and effectively.

Further, laws, which are enforced by the government, have binding force and effect. Consequences for violating laws can range from fines to incarceration. This compels individuals and businesses to comply with laws.

Functions of Law

There are several functions of law, including maintaining social order and political and economic stability. There are differences between law and morals, and between law and justice.

Laws serve many functions, including governing the behavior of individuals and the way government must interact with them. Civil and criminal laws regulate the way individuals must act in relation to one another and the world around them, thus maintaining social order. Laws also give rights to the individual and limit government power, thus helping to promote political and economic stability.

It is important to understand the difference between morals, law, and justice. Ethics is the set of moral principles or moral philosophy that governs the actions of individuals, businesses, and governments. More simply, it is the study of good and bad behavior. Similarly, business ethics is the study of good and bad behavior in business. It is important to distinguish between ethics and law. An immoral action may be legal. The legal system bases decisions on an interpretation of the law without regard to what one person or another may consider moral or ethical.

Social responsibility, in the context of a business, is a concern of businesses about their activities, both profit-seeking and non-profit-seeking, and their intended and unintended effects on groups and individuals other than the owners of a corporation. For example, companies may consider the effects they have on consumers, end users, environmentalists, governments, other businesses, and political groups. Social responsibility goes beyond knowing what is legal or illegal. To be socially responsible, corporations often want to do more than what is legally required.

Businesses often struggle to balance their duty to make a profit with their desire to be socially responsible. This intersection is where business law becomes relevant. Business law guides business leaders so they comply with laws.

Business Law

Business law regulates how companies operate—from small businesses to large corporate entities.

Business law is the set of rights, rules, laws, and obligations that govern the transaction of business in our society. The law often influences or dictates the actions of businesses. Decision-makers—in this case, business entities—must analyze the law to determine if a business's actions comply with the law and, if not, what the consequences will be.

For example, the main goal of a for-profit business is to make a profit for its shareholders. However, business managers and owners must know the law to be sure that their corporate activities comply with it. If business owners are not in compliance with the laws, they may face regulatory enforcement actions by the government or private lawsuits by consumers or their own shareholders. There may be fines, negative publicity, and ultimately an effect on the value or worth of the business or its brand.

Many aspects and areas of the law directly regulate business activities. These include contract law, consumer law, torts, white-collar criminal law, patent law and intellectual property law, administrative law, regulatory issues, insurance law, securities law, the Uniform Commercial Code, sales, mergers and acquisitions, corporate law and governance, bankruptcy, and constitutional law, to name a few.

Every day, business owners and managers confront issues that are legal or have legal ramifications. Understanding business law helps these professionals navigate this landscape.