Importance of law in business organization
Answers
The rule of law provides guidance and direction in every area of business. For example, it provides a means to bring a complaint against another party to a neutral decision maker so that a decision can be made regarding the dispute. Because of our rule of law system, we know that we are permitted to file a complaint in the proper court to commence litigation. Or we can try an alternative method of dispute resolution if we do not wish to engage in litigation. We know that we are permitted to do these things because our rule of law system allows us to do them. Moreover, we can expect some sort of resolution when we institute such a proceeding. This expectation is reasonable only because we have a rule of law.
Additionally, in the United States, the rule of law provides a sophisticated system of federalism, where state and federal laws coexist. This allows people and businesses to determine which system of government pertains to them and which jurisdiction they belong to. Imagine that you sell firearms in a retail capacity. You would be subject to both state and federal laws. You would be required to carry a federal permit from the federal administrative agency known as the Bureau of Alcohol, Tobacco, Firearms, and Explosives. You would be forbidden from engaging in illegal arms trading. According to state laws, you would likely have to ensure that each purchaser of a firearm held a valid permit for a firearm. You would be required to check identification, enforce waiting periods, and refuse to sell guns to people who were not permitted to carry them according to your state’s laws. If we did not have a rule of law system, you might be uncertain how to conduct your business, and you would be subject to arbitrary enforcement of unstated or ex post facto (retroactive) laws that affected your business.
The rule of law also governs contracts between people and between merchants. Under the common law system, certain elements of a contract must exist for the contract to be enforceable. Under the Uniform Commercial Code (UCC), merchants are governed by a separate set of rules that anticipate and allow for flexibility in contractual terms, to facilitate business needs. In the event that terms conflict in an offer and acceptance between merchants, the UCC allows “gap fillers” to complete the terms of the contract without need for the contract to be rewritten or for formal dispute resolution. Moreover, businesses rely on the rule of law to help them enforce contracts against contractors who fail to perform.
Additionally, because we have a rule of law system, employers know the rules of the game regarding their relationship to employees, and employees know the rules with respect to their obligations to employers. Likewise, business partners, members of boards of corporations, and members of limited liability companies all know what is expected of them in their roles vis-à-vis the business and other people within their organizations. When someone does something that is not permitted, there is legal recourse.
The rule of law also provides protection for property. Imagine if we did not have protection for nontangible property, such as intellectual property like trade secrets, trademarks, or copyrights. It would be very difficult to protect this type of property if we did not know the rules of the game. People would not have the incentive to create or share new intellectual property if they had no reasonable expectation of being able to protect it or of being rewarded for their creations. Likewise, the rule of law allows us to protect tangible property without having to go to extraordinary measures. For instance, if we had no rule of law system to convey and maintain legal ownership to us for our real or personal property, we might be forced to hire expensive private security forces to guard our property when we could not be there to physically protect it ourselves.
Businesses also rely on the rule of law to govern their debtor and creditor relationships. And, if financial matters do not go as anticipated, our legal system allows businesses to ask the court for protection from creditors under our bankruptcy law. This allows businesses to protect their property from creditor repossessions or foreclosures while they get back on track financially.
Answer:
If you’re pursuing your undergraduate degree in business or one of the many related degrees such as marketing, human resources management, public administration, accounting, or organizational management, you’ll likely be required to take a business law course at some point in your academic career, so you ought to understand the importance of business law. If you are working toward your MBA or other graduate business degree, you will likely take business law twice: once as an undergraduate and again during your graduate program. You may wonder why students study business law–especially if you’re planning a career in business. Before diving into the meaning and importance of why we study business law, let's take a look at the reasons and benefits of studying business law.
Businesses Follow the Law
It’s important for business owners, managers, and other professionals to have a basic understanding of business law to help them make better decisions. Just as there are laws that apply to people, there is a huge body of law that applies to business. Businesses need these laws for the same reasons that people do: to define unacceptable behavior, to provide certainty and stability, to protect the public, and to provide a mechanism for businesses to resolve disputes.
Throughout a business’ existence, it can do most things that a person can do, and we need laws to control those activities. A business can buy and sell property, sue and be sued, enter into contracts, hire and fire employees, and even commit crimes.
Laws Protect Businesses and People
We need business laws to cover all of these activities so that businesses can operate with some measure of predictability. For example, suppose you wanted to open a shoe factory. You’ll need to buy a piece of property and build your factory, which will be very expensive. Without established, predictable property laws that ensure that you are the legal owner of the land, you would be very reluctant to build the factory. There would always be some risk that someone else would come along and claim your property and factory as their own.
The same is true for all other business activity. You wouldn’t ship shoes to a retailer unless you had a way to force them to pay for the goods. You wouldn’t hire employees without some means of firing them if they didn’t do their job. In other words, it’s important to enter into contracts with a means of enforcing the agreement.
It’s also important for business owners, managers, and supervisors to understand what rights the business has against other businesses and individuals. For example, if you have an employee who is not doing his or her job, you should know your options. If you make and sell tires, you must know who will be held liable if someone is injured due to a blowout. If you enter into a contract with another business, you need to know who is bound to the contract, as well as what happens if those individuals cannot perform what they legally agreed to do.
The answers to all of these situations and more are provided by business law. The course is not intended to make anyone an expert in any area of business law, but instead to make business managers, owners, and executives more aware of the many legal issues that arise in the day-to-day operation of any business. Being aware of these potential issues will help you make the judgment calls and decisions that business professionals makes on a daily basis. A basic understanding of business law can help you spot potential legal issues as they come up, make better decisions, and know when to seek legal help.
Whether you are an entrepreneur starting your own business, a manager advancing your career at a Fortune 500 company, or just starting out in the business world, studying business law will better prepare you for a successful and rewarding career in business. Learn more about applying law in business administration, law enforcement administration, or political science and government.