The Legal Environment of Business

1-1
 Law is a set of rules that are enforced by a government authority

What is Law?
1-2
 One type of “right from wrong” is based on societal norms and
cultural expectations
 The other type of “right from wrong” is based on a source recognized
as a holding legitimate authority to enforce law within our society
 These are two types of rules in our society—social norms and laws
 Law can generally be classified as public law or private law

Social Customs and Law

Today, the Law of Business focuses on
maintaining a competitive environment;
Regulates specific marketing and business
activities;
Includes contract and sales law, commercial
paper, negotiability, secured transactions,
agency, employment, and property law, as well
as, laws regulating business organizations.

THE LAW OF BUSINESS 4

Achieve Justice;
Provide Police Power;
Maintain Peace and Status Quo;
Provide Answers;
Provide Protection;
Enforce Intent;
Provide Rehabilitation;
Facilitate Commerce.

PURPOSES OF A LEGAL SYSTEM 5

 Public law: Applies to everyone
 Private law: Legally binding on parties who agree to it, such as a contract
 Procedural law: The legal rules that must be followed by government
officials in the execution of law
 Substantive law: The actual substance of the law or the merits of the
claim, case, or action

Types of Law
1-6
 Primary sources of law: Actual laws
◦ Include constitutions, statutes, and judicial opinions
 Secondary sources of law: Interpretations of law
◦ Include restatements of law, journal articles, and
treatises
◦ Treatise: An exposition or summary of an area or body
of law

Sources of Law
1-7
 Federalism: A system in which power is divided between two or
more forms of government
 Statutory law: Law created by legislative bodies
 Bicameral: A legislature in which two bodies exist
◦ U.S. Congress is composed of the Senate and the House of
Representatives

Sources of Law
1-8
 Common law: Judge-made law
 Civil law: A system of law in which only the legislature creates law
 Jurisdiction: An area where power may be exercised

Sources of Law
1-9
 Rules or regulations: Created by administrative agencies and
have the force of law
 Enabling legislation: Statutes created by Congress to create
individual administrative agencies

Sources of Law
1-10
 A system of laws under which the people and the government are
bound
 It establishes authority, creates expectations for behavior, and
establishes redress for grievances and penalties for deviance

The Rule of Law

1-11
 The difference between power and authority
◦ Power is the ability to make someone behave in a predictable manner
◦ Authority draws its strength from legitimacy

The Rule of Law

1-12
 Without the rule of law, business would be chaotic
 The rule of law:
◦ Establishes rules that people and businesses must follow to avoid being
penalized
◦ Provides a peaceful and predictable means by which disputes can be
resolved
◦ Provides guidance and direction in every area of business
◦ Provides a sophisticated system of federalism (in the United States)

Importance of Rule of Law to Business

1-13
 ◦ Governs contracts between people and between merchants
◦ Provides protection for property
◦ Protects people from businesses
◦ Protects businesses from government

Importance of Rule of Law to Business

1-14
 Due to the existence of a rule of law system:
◦ Employers know the rules of the game regarding their relationship to
employees
◦ Employees know the rules with respect to their obligations to employers
◦ Businesses can rely on it to govern their debtor and creditor
relationships

Importance of Rule of Law to Business