Introduction:

Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts. These affect the business and its managers to a great extent. Let us see first the business environment as a whole in a summarized form.

BUSINESS ENVIRONMENT
Business environment encompasses all those factors that affect a company's operations, and includes customers, competitors, stakeholders, suppliers, industry trends, regulations, other government activities, social and economic factors, and technological developments.

There can be two divisions of Business Environment. Those are as followed:

1. Internal Environment 2. External Environment We shall elaborate different types of Business Environment. 1. Internal Environment: Conditions, entities, events and factors within an organization which influence its activities and choices, particularly the behaviour of the employees. Factors that are frequently considered part of the internal environment include: Organizational mission statements Company policies Formal structures Organizational cultures Organizational climates Resources Managerial philosophies Managerial leadership styles

2. External Environment Conditions, entities, events and factors, surrounding an organization which influence its activities and choices, and determine its opportunities and risks are considered to be as the external environment for business.

So, all outside factors that may affect an organizational make up the external environment. The external environment is divided into two parts:

I.

Directly interactive: This environment has an immediate and firsthand impact upon the organization. A new competitor entering the market is an example. Directly interactive forces include owners, customers, suppliers, competitors and employee unions. Indirectly interactive: This environment has a secondary and more distant effect upon the organization. New legislation taking effect may have a great impact. For example, complying with the Americans with Disabilities Act requires employers to update their facilities to accommodate those with disabilities. These forces include socio-cultural, political, legal, technological, economic, and global influences.

II.

 Legal aspects are an indispensable part of a successful business environment in any country.

They reflect the policy framework and the mindset of the Governmental structure of that country.

They ensure that every company is functioning as per the statutory framework of the country.

Every enterprise must take into account this legal set up while framing the basic aims and objectives of its company.

This is because; it is necessary for efficient and healthy functioning of the organization and helps it to know about the rights, responsibilities as well as the challenges that it may have to face.

Legal environment constitutes the laws and various legislations passed in the parliament. The businessman cannot overlook the legislations because he has to perform his business transactions within the framework of legal environment. The common legislation passed which has affected the business transactions are Trade Mark Act, Essential Commodity Act, Weights and Measures Act etc. Most of the time legal environments put constraints on the businessman but sometimes they provide opportunities also. The common instances of Indian legal environment which have influenced business transactions recently are: 1. Deregulations of capital market have made it easy for businessman to collect capital from primary market. 2. Removal of control from the foreign exchange and liberalization in investment is encouraging foreign investors and NRIs to invest in Indian capital market.

3. Advertisement of alcoholic product is Prohibit. 4. Compulsory to give statutory warning in Tobacco products. 5. Delicening policy of industries.

Legal factors: these are related to the legal environment in which firms operate. In recent years there have been many significant legal changes that have affected firms behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organizations actions. Legal changes can affect a firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).

In many countries, with a view to protecting consumer interest, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries.

Some government specify certain standards for the products (including packaging) to be marketed in the country: some even prohibit the marketing of certain products. In most nations, promotional activities are subject to various types of controls. Several European countries restrain the use children in commercial advertisement. In a number of countries, including India, the advertisement of alcoholic liquor is prohibited. Advertisements, including packaging, of cigarettes must carry the statutory warning that cigarette smoking is injurious to health. Similarly, baby food must not be promoted as a substitute for breast feeding. In countries like Germany, product comparison advertisements and the use of superlatives like best or excellent in advertisements is not allowed. In the United States, the Federal Trade Commission is empowered to require a company to provide sufficient evidence to substantiate the claim concerning the quality, performance or comparative prices of its products.

There are host of statutory controls on business in India. Although the controls have been substantially brought down as a result of the liberalization, a number of controls still prevail.

Many countries today have law to regulate competition in the public interest. Elimination of unfair competition & dilution of monopoly power are the important objective of these regulations. Certain changes in govt. policies such as the industrial policy, fiscal policy, tariff policy etc. may have profound impact on business. Some policy development creates opportunities as well as threats. In other words, a development which brightens the prospects of some enterprises may pose a threat to some others. For example, the industrial policy liberalization in India has opened up new opportunities & threats. They have provided a lot of opportunities to a large no. of enterprise to diversify and to make their product mix better. But they have also given rise to serious threats to many existing products by way of increased competition;

many sellers markets have given way to buyers markets. Even products which were seldom advertised have come to be promoted very heavily. This battle for the market has provided a splendid opportunity for the advertising industry.

The government, in every country, regulates the business according to its defined priorities. Legal system of a country is framed by the government. The laws which are passed by the government for business operation is called legal environment. In every country, the government regulates business activities. These regulations of government are considered as legal environment. In practice legal and regulatory goes hand in hand. The limits for business operations are decided by regulatory environment & this is also called legal environment.

Legal environment in a country has a dominating position on all decisions of organization. As all business policies are highly influenced by government, the organization should have thorough knowledge of these policies because non-implementation of legal policies results in heavy fines, penalties & punishment & therefore every organization must follow all these regulations.

Laws and regulations relating to Business Environment:

Indian Contract Act,1872

1.

The bulk of the transactions in trade, commerce and industry are based on contracts. The Indian Contract Act, 1872 is the governing legislation for contracts. It lays down the general principles relating to The formation and enforceability of contracts Rules governing the provisions of an agreement and offer The various types of contracts including those of indemnity and guarantee, bailment and pledge and agency. It also contains provisions pertaining to breach of a contract.

Its main points are :

Contracts. Agreement. Guarantee. Indemnity.

2. Companies Act, 1956

It relates to setting up and operation of companies in India. It empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. It contains the mechanism regarding organizational, financial, managerial and all the relevant aspects of a company.

 Distinction between private and public limited company.

Procedure for registration of a company. The memorandum of the company The articles The agreement with the managing director / manager. Statutory declaration of compliance Doctrine of Ultra Vires
Companys activities are strictly confined to the objects mentioned in the memorandum of association and if it goes beyond then such acts are ultra vires. Ultra vires contracts are null and void ab initio.

Powers and duties of Directors.

Powers
To make calls on share holders To issue debentures To borrow money otherwise than on debentures To invest funds To make loans

Duties
Statutory duties Duties of general nature

3. Negotiable Instruments Act, 1881

Promissory Note. Bill of exchange. Cheque.

4. SALE OF GOODS ACT, 1930

There must be at least two parties. Transfer or agreement to transfer the ownership of goods. The subject matter of the contract must be necessarily be goods (No Immovable property). The consideration is price. Contract of sale may be absolute or conditional. All other essentials of a valid contract must be present.

5. Consumer Protection Act, 1986

Interests of Consumers. Promote & protect the rights of the consumers. Provides Simple & Steady redressal to consumer disputes.

6. Industrial Development & Regulation Act, 1951

In order to provide the Central Government with the means to implement its industrial policies, several legislations have been enacted. The main objectives of the Act are: To empower the Government to take necessary steps for the development of industries; To regulate the pattern and direction of industrial development To control the activities, performance and results of industrial undertakings in the public interest.

7. Industrial Disputes Act 1947

It is the main legislation for investigation and settlement of all industrial disputes. The Act enumerates o The contingencies When a strike or lock-out can be lawfully resorted to When they can be declared illegal or unlawful o Conditions for laying off, retrenching, discharging or dismissing a workman o Circumstances under which an industrial unit can be closed down o Several other matters related to industrial employees and employers.

8. Indian Trade Union Act 1926

The Act deals with the registration of trade unions, their rights, their liabilities and responsibilities as well as ensures that their funds are utilized properly.

It gives legal and corporate status to the registered trade unions. It also seeks to protect them from civil or criminal prosecution so that they could carry on their legitimate activities for the benefit of the working class.

9. Foreign Exchange Management Act, 1999

To facilitate external trade & payments. To maintain Foreign Exchange market. It envisages the RBIs role in Management of FOREX.

10. Industrial Policy, 1991

5th Industrial Policy since 1948. Impressive Growth of 9% in Industries from 1985-1990. Recognized the need for development of technology & manufacturing capabilities to World standards. Changes in respect to Industrial Licensing, Reforms in PSUs & Foreign Investments.

11. Common Minimum Program By UPA in 2004-05

Features:
Doubling of agriculture credit. Rs 8000 crores for Rural Industrial Development Fund. Board Reconstruction of Public Sector Enterprise. VAT implementation. Non Taxable Income raised.

12. Law Related to Labour Activities :

(i) Background of Labour Laws

Long working hours Poor safety conditions Unhygienic & Hazardous working conditions Child labour No job security

(ii)

Apprentices Act

 Obligation of Employer Legal Position of Apprentices Stipend Payable Test & Proficiency Certificate Apprenticeship Adviser

(iii)

The Employee State Insurance Act [ESI Act]

Applicability Contribution to Fund Benefits Procedural Aspects Punishment for offences

(iv)

Gratuity Act

Employers liable Employees eligible Amount Payable Forfeiture/Deduction of Gratuity

(v)

Industrial Disputes Act

Layoff & Retrenchment Applicability

(vi)

Bonus Act

Applicability Employees eligible Exemption to new Establishments Available Surplus & Allocable Surplus

(vii)

Provident Fund Act

Applicability Non Eligible Employees Benefits

(viii)

Workmens Compensation Act

Compensation Payable Liability of employer Payment only through Commissioner Injury arising out of & during the course of employment

13. Standing Orders

Coverage of Act Disciplinary action Punishments that can be imposed Domestic Enquiry

14. ENVIORNMENTAL REGULATION IN INDIA

The Water (Prevention and Control of Pollution) Act of 1974. The Air (Prevention and Control of Pollution) Act of 1981. The Wild Life (Prevention) Act of 1972. The Public Liability Insurance Act of 1991. The National Environmental Tribunal Act of 1995. The Mines and Minerals Act of 1957.

15. ENVIRONMENT PROTECTION ACT OF 1986

Environment pollution Prohibit Industrial Unit Corporate Officials

16. NCS
In 1992- National Conservation Strategy and Policy Statement on Environment and Development (NCS)

GUIDING PRINCIPLES
PREVENTION OF POLLUTION AT SOURCE ADOPTION OF BEST AVAILABLE TECHNOLOGY POLLUTER PAYS PRINCIPLE PUBLIC PARTICIPATION IN DECISION MAKING

17. Laws Relating to Intellectual Property Rights

I. Trade Marks Act 1999

The Trade Marks Act,1999 has been enacted To amend and consolidate the law relating to trade marks, To provide for registration and better protection of trade marks for goods and services and for the prevention of the use of fraudulent marks. Trade mark' means A mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colors".

II. Geographical Indications of Goods (Registration and Protection) Act 1999

It has been enacted to provide for the registration and better protection of geographical indications relating to goods.

Geographical Indication

An indication which identifies such goods as agricultural goods, natural

goods or manufactured goods as originating, or manufactured in the territory of a country, or a region or locality in that territory, where a given quality, reputation or other characteristic of such goods is essentially attributable to its geographical origin and in case where such goods are manufactured goods, one of the activities of either the production or of processing or preparation of the goods concerned takes place in such territory, region or locality, as the case may be".

III. Designs Act 2000

The Designs Act, 2000 has been enacted to consolidate and amend the law relating to registration and protection of new and original industrial designs.

Design' means Only the features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article whether in two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the finished article appeal to and are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substance a mere mechanical device, and does not include any trade mark as defined in the Trade and Merchandise Marks Act, 1958 or property mark as defined in the Indian Penal Code or any artistic work as defined in the Copyright Act, 1957".

IV. Patents Act 1970

The term 'patent' is defined as a monopoly right which is granted to a person who has invented a new and useful article, or an improvement of existing article, or a new process of making an article.

It consists of an exclusive right to manufacture the new invented article or manufacture an article according to the invented process for a limited period. Inventions that consist of products or new alloy is called product invention and the corresponding patent to this is referred to as 'product patent'. Whereas, inventions that consists of process or processes of making a known or new alloy is a process invention and patent for this is called a 'process patent'. This Act only provided for process patent and for product like food, pharmaceutical and chemicals, the inventors were granted only EMR (exclusive marketing rights).

V. Indian Copyright Act 1957

The term 'copyright' means the exclusive right to do or authorize the doing of a 'work' or a substantial part of it. The term 'work' used here means:-

A literary work:- it includes computer programmes, tables, compilations and computer databases.

 A dramatic work:- it includes any piece of recitation, choreographic work or entertainment in dumb show, the scenic arrangement or acting, whose form is fixed in writing or otherwise. A musical work: - it includes works of music, any graphical notation of such work but does not include any words or action intended to be sung, spoken or performed with the music. An artistic work: - it means a painting, a sculpture, a drawing (including a diagram, map, chart or plan), an engraving or a photograph, whether or not they possess artistic quality. It also includes a work of architecture and any other work of artistic craftsmanship. A cinematographic film: - it means any work of visual recording on any medium produced through a process from which a moving image may be produced by any means. A sound recording: - it means recording of sounds from which sounds may be produced regardless of the medium by which sounds are produced.

18. Laws Relating to Doing Business Abroad

I.

Bilateral Investment Promotion & Protection Agreement

In order to encourage capital inflows and provide safe business environment for all investments abroad, many countries have entered into bilateral investment treaties or agreements.

The Government of India has, so far, signed BIPAs with 58 countries out of which 49 BIPAs have already come into force and the remaining agreements are in the process of being enforced. Bilateral Investment Promotion and Protection Agreement (BIPA) is one such bilateral treaty which is defined as an agreement between two countries (or States) for the reciprocal encouragement, promotion and protection of investments in each other's territories by the companies based in either country (or State).

 These bilateral agreements have, by and large, standard elements and provide a legal
basis for enforcing the rights of the investors in the countries involved.

II. Foreign Exchange Management Act 1999

In India, all transactions that include foreign exchange are regulated by the Foreign Exchange Management Act (FEMA), 1999.

It repealed the Foreign Exchange Regulations Act (FERA), 1973. FEMA has been enacted to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market.

Under the Act, Reserve Bank of India (RBI) has been authorized to frame various rules, regulations and norms pertaining to overseas investments in consultation with the Central Government It applies to all branches, offices and agencies outside India, owned or controlled by a person resident in India. According to the Act, the term 'foreign exchange' means "foreign currency and includes: Deposits, credits and balances payable in any foreign currency Drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; Drafts, travelers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency".