How important is the knowledge of business law in the world of business?

Business must operate within the legal framework of federal, state, and local governments, and business law is playing an increasingly important role in the private enterprise system. 

Photo by freepik.com

Executives are not expected to be attorneys, but they should be aware of the various legal requirements that affect their management decision making.

The concept of the law

Law consists of the standards set by government and society in the form of either legislation or custom. Arising from state and federal constitution that originally established the forms of government, our complex body law consists primarily of legislation and legal decisions.

Sources of law

This broad body principle, regulations, rules, and customs that governs the action of all members of society, including business, is derived from several sources. Common law refers to the body of law arising out of judicial decisions related to the unwritten law the country inherited from England. This unwritten law is based on custom and court decisions of early England.

While common law plays an important role in today's legal system, the primary sources of law now are the statutory rules. Statutory law, or written law, includes state and federal constitutions, legislative enactments, treaties of the federal government, and ordinances of towns, cities, and other local governments. There is now less reliance on the unwritten, common law and more on statutory or written law.

Statutes must be drawn in a precise and reasonable manner in order to be constitutional (and thus enforceable), but courts are frequently called upon to interpret their intention and meaning. The court rulings result in statutory laws being expanded, contracted, modified, or even discarded all together.

No system of law, written or unwritten, is permanent. Laws reflect the beliefs of the people they regulate, and both courts and legislatures are aware of this act. Laws are constantly being added, repealed, or modified as the requirements of society and government dictate.

The nature of business law

In a broad sense, all law is business law because all business are subject to the entire body of law in the same manner as citizen are. But in a narrower sense, business law consists of those aspects of law that most directly and specifically influence and regulate the management of various types of business activity.

Types of business law

The term business law includes all law that is of concern to business, although particular areas of legal emphasis vary widely from business to business and from industry. Laws affecting small firms are different from those governing large corporations. The legal interests of the automobile industry differ from those of real estate developers.

The Internal Revenue Code is an example of a law that has universal application. However, numerous federal laws regulate only one industry, such as oil and gas drilling or television communications. State and local statutes also have varying applications. Some state laws effectively regulate all business conduct in a particular state, regardless of the size or nature of the enterprise. Workers for injuries incurred on the job, are an example. 

Other state laws control only certain businesses or business activities: the so-called blue laws, which regulate the extent to which businesses - particularly retailers - can operate on Sundays, are an example of this kind of narrow control.

A knowledge of business law is important in business

No owner, manager, or employee can conduct any type of business activity without reference to some laws. All business decisions must take into account the legal consequences. Some decisions must involve in depth legal planning and review, while others need have only an implied or subconscious reference to the law.

Business decision makers gain experience and expertise in applying legal standards to their decisions in much the same manner as they develop any other management skill: through constant use and refinement. 

When legality cannot be determined through the experience and judgment of the businessperson, other professionals - such as lawyers, government employees, and elected officials - must be consulted. Generally, the more complex the business objective, the more complex the role of law.