Chapter 1.

Legal Framework For Business

Q 1. What is business law? Define the needs and importance of business law.
OR
Explain the needs and importance of business law.
Law is essential to any society in that it provides the rules by which people
and businesses interact. Law affects almost every function and area of business. The
authors of one business law text go so far as to say that the difference between
winning and losing in the business world often depends upon the ability to make
good choices from a legal perspective.1 This is because almost every business
decision has legal repercussions, including deciding whether to incorporate a
business, obtaining financing, protecting proprietary knowledge used to develop
products/services, entering into contracts to purchase raw materials, ensuring that
products meet safety standards, disposing of plant wastes, promoting and pricing
products/services, entering into contracts to sell products/services, and providing
product warranties and after-sales service.

At all stages of business, running afoul of the law can hurt a business, while
playing within the boundaries of the law can help the business to succeed. For this
reason, accountants, who play a key role in almost every aspect of operations, must
have a solid working knowledge of the law.

Definition of law:
The word law is generally associated with the word rules. McInnes, Kerr, and Van
Duzer provide a simple definition of law as a rule that can be enforced by the courts.2
Similarly, Yates defines law as the body of rules that can be enforced by the courts or
by other government agencies.3 DuPlessis and OByrne define law as a set of rules and
principles intended to guide conduct in society, primarily by protecting persons and their
property; facilitating personal and commercial interactions; and providing mechanisms
for dispute recognition.4 Smyth, Soberman, Easson, and McGill describe what law does,
which is to set standards of behaviour that are enforced by government, and also by
individuals and groups with the help of government.5


NEEDS OF BUSINESS LAW.
Business law deals with the creation of new businesses and the issues that
arise as existing businesses interact with the public, other companies, and the
government. This area of the law draws on a variety of legal disciplines, including tax
law, intellectual property, real estate, sales, employment law, bankruptcy, and others.
Business law attorneys specialize in transactional work, meaning they do not
represent clients in court. In fact, business lawyers are often hired for the purpose of
avoiding future litigation.

To understand the role of business law within the legal system, it helps to view
businesses as entities separate from their owners and employees. Just like individuals
living together in society, business entities are subject to legal rules designed to give
every participant in the marketplace a fair opportunity to succeed.

An enforceable system of business laws also benefits the economy as a whole and
provides for more efficient transactions. For example, a supplier who sells goods on
credit can be confident that the buyer will held to the agreed payment terms. As long
as the contract is drafted and executed in accordance with the Uniform Commercial
Code (UCC) adopted in that jurisdiction, the supplier knows ahead of time it will be
able to enforce the contract against the buyer if necessary.
Business Formation and Internal Agreements
New companies must take steps to comply with the law even before opening
their doors for the first time. Business law attorneys are routinely asked to form new
entities on behalf of their clients by filing the necessary documents with the Secretary
of State. Clients may also need assistance choosing the business entity best suited for
their enterprise.
Businesses can be formed as corporations, limited liability companies (LLCs),
partnerships, and other entities. Most of these business forms can be further
customized to meet the needs of the company. Examples include corporations formed
as S-corps in order to achieve tax savings, and partnerships formed as limited
partnerships to allow some owners to participate as investors only.
While the selection of the appropriate business entity will depend on
numerous factors, the primary purpose of most entities is to shield owners from
individual liability. Operating a business that is not set up to provide limited liability
means that the owners are putting all of their personal assets within reach of the
businesss creditors. By working with an attorney at the inception of the business, this
situation can easily be avoided.

Business law attorneys are also available to draft the internal agreements that will
control how a new company is managed. A common example is an LLC operating
agreement. This document should be drafted with care, as it governs how the
companys owners will share profits and losses, make important business decisions,
and transfer their ownership rights.

Navigating Complex Transactions
Some commercial transactions are within the ability of business owners to
handle on their own. Others are not, especially when a deal touches on complicated
and evolving areas of the law, such as securities regulation or internet commerce. In
heavily-regulated industries in particular, companies rely on their in-house or hired
lawyers for advice regarding the latest legal developments affecting their businesses.

Even for savvy business people, problems can develop when emotions become
involved. Attorneys can provide valuable insight into a transaction, not only because
of their legal training, but also because of the objective nature of their analysis. This
allows them to spot issues overlooked by business owners and managers who may be
too emotionally invested in seeing the deal go through.

Preemptive Measures to Avoid Litigation
One way to distinguish business law as its own field of practice is to take note
of when these issues arise. Business law provides rules and guidance for companies to
follow before disputes occur. Attorneys who practice in this area are experts at
structuring transactions to minimize the companys exposure to litigation. This sort of
strategic legal maneuvering can end up saving the company huge amounts of money.

Consider the example of a services company headquartered in one state, with
customers all across the nation. The company might hire a lawyer to draft customer
agreements that require customers to follow specific dispute procedures, such as
giving the company an opportunity to remedy deficient services before a legal claim
is made, or providing that disputes must be submitted to arbitration in the companys
home state. In every industry, there are opportunities for business attorneys to save
their clients money and provide them with a greater competitive advantage.

Hiring Legal Counsel
If you operate an existing business or plan to launch a new one, your success
may depend on obtaining the right legal advice. Attorneys are available to assist with
everything from simple buy/sell agreements to mergers and acquisitions of publicly-
traded companies. Schedule a consultation with a business law firm today.

Importance of Business Law
Ignorance of the law excuses no one. A law is a law. For you to be able to
smoothly live in the society you are in, you need to follow the rules. Different
governments practice different laws. However, one thing is common to them. All of
them have laws on a certain matter; they just differ on the regulations entailed. A
good example of this is business law.
When certain cases occur that a business practice is being held in question, it is the
business law that actually saves the day. Business law, called commercial law, entails
all the business and commercial transactions today. It mainly protects the right of
business enterprises, together with shareholders, directors, employees, and the
consumers.
Business law as a whole covers a lot of aspects in the business world. The following
are some of the articles included under the commercial law:
It entails all the rules of carriage both by land and sea.
It covers marine, fire, life and accident insurance.
It defines bills of exchange and partnership.
It gives out rules for corporate or legal contracts.
It sets out the guidelines in hiring individuals or employees.
It regulates the manufacturing and selling of consumer goods.
Basically, commercial law covers a lot of other laws. One of these is the corporation
law, also referred to as the company law. This corporation law takes charge of the
business type known as corporations. This type of company is publicly-owned. With
the company law, the duties and power of each individual is given definitions and the
necessary rules are set in its articles.
Aside from corporation law, there are a lot of other categories under business law.
These areas are actually being taught in law schools to produce an effective business
lawyer and intellectual property attorney. The following is included in the curriculum
for business law today:
News on Contracts
Law of Corporations and other Business Organizations
Securities Law
Intellectual Property
Income Tax
Pensions and Benefits
Trusts and Estates
Labor Law
Employment Law and Bankruptcy
Antitrust
Immigration Law
Following the areas in business law, you can define it in just a few words. Business
law entails topics that impact business operation. So in cases there are problems with
the business operation, the best person to contact is a business lawyer, or an
intellectual property attorney for a more specialized problem.
The bottom line here is that business law is indeed a helping hand for business
enterprises. Without it, fraud and deception will be common in the operations of any
business. Now that news of unlawful businesses is becoming common, there will
surely be a considerable punishment for them because of business law.

Q 2. Explain the laws governing various forms of business organization.
Or
Enlist various laws governing business activities. Explain their application.
Or
Enumerate the need of laws governing to various forms of business
organization.
Or
What are the Objects of consumer protection Act, 1986?

The laws governing various forms of business organization are as follows:-
a) Indian Contract Act, 1872
The law relating to contracts in India is contained in Indian Contract
Act, 1872. The Act was passed by British India and is based on the
principles of English Common Law. It is applicable to the All States of
India except the State of Jammu & Kashmir. It determines the
circumstances in which promise made by the parties to a contract shall
be legally binding on them. All of us enter into a number of contracts
everyday knowingly or unknowingly. Each contract creates some right
and duties upon the contracting parties. Indian contract deals with the
enforcement of these rights and duties upon the parties in India.
Essential Elements of a Valid Contract
According to Section 10, "All agreements are contracts, if they are
made by the free consent of the parties, competent to contract, for a
lawful consideration with a lawful object, and not hereby expressly to
be void."
Essential Elements of a Valid Contract are:
1.Proper offer and proper acceptance.
2.Lawful consideration:
3.Competent to contract or capacity:
4.Free Consent:
5.Lawful Object and Agreement:
6. Agreement not declared void or illegal:
7. Intention To Create Legal Relationships:-
8.Certainty, Possibility Of Performance
9. Legal Formalities
10. By surety

b) The Indian Partnership Act, 1932
The Indian Partnership Act, 1932 is an act enacted by the Parliament
of India to regulate partnership firms in India. It received the assent of
the Governor-General on 8 April 1932 and came into force on 1
October 1932. Before the enactment of this act, partnerships were
governed by the provisions of the Indian Contract Act. The act is
administered through the Ministry of Corporate Affairs. The act is not
applicable to Limited Liability Partnerships, since they are governed
by the Limited liability Partnership Act, 2008.
Partnership refers to an agreement between persons to share
their profits or losses arising on account of actions carried by all or one
of them acting on behalf of all. The persons who have entered such an
agreement are called partners and give their collective business a
name, which is necessarily their firm-name. This relation between
partners arises out of a contract or an agreement, which means a
husband and wife carrying on a business or members of a Hindu
undivided family are not into partnership. The share of profits received
by any individual from the firm, money received by a lender of money,
salary received by a worker or a servant, annuity received by a widow
or a child of a deceased partner, does not make them a partner of the
firm.
c) The Industrial Disputes Act, 1947
An Act to make provision for the investigation and settlement of
industrial disputes, and for certain other purposes. The Industrial
Disputes Act, 1947 extends to the whole of India. It came into force
April 1, 1947.
The objective of the Industrial Disputes Act is to secure industrial
peace and harmony by providing machinery and procedure for the
investigation and settlement of industrial disputes by negotiations.
The Act also lays down
1. The provision for payment of compensation to the workman on
account of closure or lay off or retrenchment.
2. The procedure for prior permission of appropriate Government
for laying off or retrenching the workers or closing down
industrial establishments
3. Unfair labour practices on part of an employer or a trade union
or workers.
d) The Minimum Wages Act, 1948
The Minimum Wages Act, 1948 is an Indian legislation enacted by
the Parliament of India for statutory fixing of minimum wages to be
paid to skilled and unskilled labours. The Indian Constitution has
defined a 'living wage' that is the level of income for a worker which
will ensure a basic standard of living including good health, dignity,
comfort, education and provide for any contingency.
Main provisions
The Act provides for fixing wage rate (time, piece, guaranteed time,
overtime) for any industry that has at least 1000 workers.
1) While fixing hours for a normal working day as per the act should
make sure of the following:
The number of hours that are to be fixed for a normal working
day should have one or more intervals/breaks included.
At least one day off from an entire week should be given to
the employee for rest.
Payment for the day decided to be given for rest should be
paid at a rate not less than the overtime rate.
2) If an employee is involved in work that categorises his service in
two or more scheduled employments, the employees wage will
include respective wage rate of all work for the number of hours
dedicated at each task.
3) It is mandatory for the employer to maintain records of all
employees work, wages and receipts .
4) Appropriate governments will define and assign the task of
inspection and appoint inspectors for the same.
e) The Companies Act, 1956
The Companies Act 1956 is an Act of the Parliament of India, enacted
in 1956, which enabled companies to be formed by registration, and set
out the responsibilities of companies, their directors and secretaries.[1]
The Companies Act 1956 is administered by the Government of India
through the Ministry of Corporate Affairs and the Offices of Registrar
of Companies, Official Liquidators, Public Trustee, Company Law
Board, Director of Inspection, etc. The Registrar of Companies (ROC)
handles incorporation of new companies and the administration of
running companies.
f) Information Technology Act 2000
An Act to provide legal recognition for transactions carried out by
means of electronic data interchange and other means of electronic
communication, commonly referred to as "electronic commerce",
which involve the use of alternatives to paper-based methods of
communication and storage of information, to facilitate electronic
filing of documents with the Government agencies and further to
amend the Indian Penal Code, the Indian Evidence Act, 1872, the
Bankers' Books Evidence Act, 1891 and the Reserve Bank of India
Act, 1934 and for matters connected therewith or incidental thereto.
The Information Technology Act 2000 (also known as ITA-
2000, or the IT Act) is an Act of the Indian Parliament (No 21 of
2000) notified on October 17, 2000.
Provisions
Information technology Act 2000 consisted of 94 sections
segregated into 13 chapters. Four schedules form part of the Act. In the
2008 version of the Act, there are 124 sections (excluding 5 sections
that have been omitted from the earlier version) and 14 chapters.
Schedule I and II have been replaced. Schedules III and IV are deleted.
Information Technology Act 2000 addressed the following
issues:
1. Legal Recognition of Electronic Documents
2. Legal Recognition of Digital Signatures
3. Offenses and Contraventions
4. Justice Dispensation Systems for Cybercrimes
g) The Foreign Exchange Management Act,
1999(FEMA)
The Foreign Exchange Management Act (FEMA) is a 1999 Indian
law "to consolidate and amend the law relating to foreign exchange
with the objective of facilitating external trade and payments and for
promoting the orderly development and maintenance of foreign
exchange market in India". It was passed in the winter session of
Parliament in 1999, replacing the Foreign Exchange Regulation Act
(FERA). This act seeks to make offenses related to foreign exchange
civil offenses. It extends to the whole of India.,
[1]
replacing FERA,
which had become incompatible with the pro-liberalisation policies of
the Government of India. It enabled a new foreign exchange
management regime consistent with the emerging framework of the
World Trade Organisation (WTO). It is another matter that the
enactment of FEMA also brought with it the Prevention of Money
Laundering Act of 2002, which came into effect from 1 July 2005.
Main Features
- Activities such as payments made to any person outside India or
receipts from them, along with the deals in foreign exchange and
foreign security is restricted. It is FEMA that gives the central
government the power to impose the restrictions.
- Restrictions are imposed on people living in India who carry out
transactions in foreign exchange, foreign security or who own or hold
immovable property abroad.
- Without general or specific permission of the MA restricts the
transactions involving foreign exchange or foreign security and
payments from outside the country to India the transactions should
be made only through an authorised person.
- Deals in foreign exchange under the current account by an authorised
person can be restricted by the Central Government, based on public
interest.
- Although selling or drawing of foreign exchange is done through an
authorised person, the RBI is empowered by this Act to subject the
capital account transactions to a number of restrictions.
- People living in India will be permitted to carry out transactions in
foreign exchange, foreign security or to own or hold immovable
property abroad if the currency, security or property was owned or
acquired when he/she was living outside India, or when it was
inherited by him/her from someone living outside India.
- Exporters are needed to furnish their export details to RBI. To ensure
that the transactions are carried out properly, RBI may ask the
exporters to comply to its necessary requirements.
[7]

h) The Foreign Exchange Regulation Act, 1973
An Act to consolidate and amend the law regulating certain payments,
dealings in foreign exchange and securities, transactions indirectly
affecting foreign exchange and the import and export of currency 2 for
the conservation of the foreign exchange resources of the country and
the proper utilisation thereof in the interests of the economic
development of the country.
This Act may be called the Foreign Exchange Regulation Act, 1973 . It
extends to the whole of India. It applies also to all citizens of India
outside India and to branches and agencies outside India of companies
or bodies corporate, registered or incorporated in India.
It shall come into force on such date 1[ as the Central Government
may, by notification in the Official Gazette, appoint in this behalf:
Provided that different dates may be appointed for different provisions
of this Act and any reference in any such provision to the
commencement of this Act shall be construed as a reference to the
coming into force of that provision.
i) The Monopolies And Restrictive Trade Practices Act,
1969

This Act may be called the Monopolies and Restrictive Trade Practices
Act, 1969.

It extends to the whole of India except the State of Jammu and
Kashmir.

It shall come into force on such date as the Central Government may,
by notification, appoint 1a .

DEFINITIONS.
In this Act, unless the context otherwise requires, -

(a) "agreement" includes any arrangement or understanding, whether
or not it is intended that such agreement shall be enforceable (apart
from any provision of this Act) by legal proceedings;

(b) "Commission" means the Monopolies and Restrictive Trade
Practices Commission established under section 5;

(c) "Director General" means the Director General of Investigation and
Registration appointed under section 8, and includes any Additional,
Joint, Deputy or Assistant Director General of Investigation and
Registration appointed under that section;
j) Consumer Protection Act, 1986.
The law relating to consumer protection is contained in the consumer protection Act, 1986.
The act applies to all
goods and services. The central government however by notification published in the Official
Gazette exempts any
goods (or) Services.
Objects of the Act: The following are the objectives of Consumer Protection Act, 1986.
They are follows:-
1. Better Protection of Consumers: The act seeks to provide for the better protection of
the interest of consumers and
for that purpose, makes a provision for the establishment of consumer councils and other
authorities for settlement of
consumer disputes and for matters connected therewith.
2. Protection of rights of consumers: The Act, seeks to promote and protect the rights of
consumers such as:-
a) The consumer has the right to be protected against marketing of goods and services
which are hazardous to life
and property.
b) They have the right to be informed about the quality, quantity, potency, purity, standard
and price of goods (or)
services so as to protect the consumers against the unfair trade practices.
c) The consumers also have the right to seek redressal against the unfair trade practices (or)
restrictive trade
practices of exploitation of the consumers. And
d) The consumer has Right of education.
3. Consumer protection Councils: The objectives of Consumer protection Act, 1986, are
sought to be promoted and
protected by the Consumer Protection Councils established at the central and State levels.
4. Quasi-Judicial machinery for speedy redressal of consumer disputes: The Act also
seeks to provide speedy and
simple redressal to consumer disputes. For this purpose, there has been set up a quasi-
judicial machinery at the district,
state and central levels. These quasi-judicial bodies are supposed to give reliefs of a specific
nature, and also provide compensation to consumers whenever appropriate.
k) The Income-tax Act, 1961
The Income-tax Act, 1961 is the charging Statute of Income Tax in
India. It provides for levy, administration, collection and recovery of
Income Tax. Recently the Government of India has brought out a draft
statute called the "Direct Taxes Code" intended to replace the Income
Tax Act,1961 and the Wealth Tax Act, 1956. Public Commentary has
been called for the Draft Bill.
[1]
The redrafted bill is supposed to be
made public soon.
Scope of Total Income
Subject to the provisions of this Act, the total income of any
previous year of a person who is a resident includes all income
from whatever source derived which(a) is received or is deemed
to be received in India in such year by or on behalf of such person ;
or(b) accrues or arises or is deemed to accrue or arise to him in
India during such year ; or(c) accrues or arises to him outside India
during such year :Provided that, in the case of a person not
ordinarily resident in India within the meaning of sub-section
(6) of section 6, the income which accrues or arises to him outside
India shall not be so included unless it is derived from a business
controlled in or a profession set up in India.(2) Subject to a the
provisions of this Act, the total income of any previous year of a
person who is a non-resident includes all income from whatever
source derived which(a) is received or is deemed to be
received in India in such year by or on behalf of such person ;
or(b) accrues or arises or is deemed to accrue or arise to him in
India during such year.
l) the Central Excise Act, 1944
It extends to the whole of India.

(3) It shall come into force on such date as the Central
Government may, by notification in the Official Gazette,
appoint in this behalf.

SECTION 2. Definitions. In this Act, unless there is
anything repugnant in the subject or context, -

(a) Adjudicating authority means any authority competent to
pass any order or decision under this Act, but does not include the
Central Board of Excise and Customs constituted under the Central
Boards of Revenue Act, 1963 (54 of 1963), Commissioner of Central
Excise (Appeals) or Appellate Tribunal;
(aa) Appellate Tribunal means the Customs, Excise and Service
Tribunal Tax constituted under section 129 of the Customs Act, 1962
(52 of 1962);
(aaa) "broker or commission agent means a person who in the
ordinary course of business makes contract for the sale or purchase of
excisable goods for others;
(b) Central Excise Officer means the Chief Commissioner of
Central Excise, Commissioner of Central Excise, Commissioner of
Central Excise (Appeals), Additional Commissioner of Central Excise,
Joint Commissioner of Central Excise, Assistant Commissioner of
Central Excise or Deputy Commissioner of Central Excise or any other
officer of the Central Excise Department, or any person (including an
officer of the State Government) invested by the Central Board of
Excise and Customs constituted under the Central Boards of Revenue
Act, 1963 (54 of 1963) with any of the powers of a Central Excise
Officer under this Act.
(c) curing includes wilting, drying, fermenting and any
process for rendering an unmanufactured product fit for marketing or
manufacture;
(d) excisable goods means goods specified in the First Schedule and the
Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being
subject to a duty of excise and includes salt;
Explanation - For the purposes of this clause, goods includes any
article, material or substance which is capable of being bought and sold
for a consideration and such goods shall be deemed to be marketable.
The Right to Information Act, 2005

An Act to provide for setting out the practical regime of right to information for citizens to
secure access to information under the control of public authorities, in order to promote
transparency and accountability in the working of every public authority, the constitution of a
Central Information Commission and State Information Commissions and for matters
connected therewith or incidental thereto.
The Right to Information Act (RTI) is an Act of the Parliament of India "to provide for
setting out the practical regime of right to information for citizens" and replaces the erstwhile
Freedom of Information Act, 2002. The Act applies to all States and Union Territories of
India except the State of Jammu and Kashmir. Jammu and Kashmir has its own act called
Jammu & Kashmir Right to Information Act, 2009. Under the provisions of the Act, any
citizen may request information from a "public authority" (a body of Government or
"instrumentality of State") which is required to reply expeditiously or within thirty days. The
Act also requires every public authority to computerise their records for wide dissemination
and to pro-actively publish certain categories of information so that the citizens need
minimum recourse to request for information formally. This law was passed by Parliament on
15 June 2005 and came fully into force on 12 October 2005.
[1]
Information disclosure in India
was restricted by the Official Secrets Act 1923 and various other special laws, which the new
RTI Act relaxes.
The Act has increased transparency and greater accountability in the functioning of the
government and hence played a significant role in exposing and reducing corruption to some
extent. It is claimed to promote a "citizen-centric approach to development" and to increase
the efficiency of public welfare schemes run by the government.
[2]




Q 3. State the objectives of business law. Explain its significance and scope as to
govern various business organization.
Business laws exist to create reliable standards for companies to
follow. Most business transactions fall under contracts law, concerning
themselves with issues such as uniformity and creating standards that are easy
to follow in the ordinary course of business.
Main Purpose
o Business laws create consistent, predictable standards. While laws that govern
businesses vary by state, they all have certain requirements that reduce risk
and uncertainty between parties that enter into formal agreements.
Enforcement
o Many business relationships form over contracts. In order to encourage the
formation of business relationships, laws must provide enforcement that
allows contractual relationships to stay intact.

Predictability
o Predictable business laws allow people in business to enter into multiple
transactions with the assurance that each transaction receives a certain level of
protection. For example, a commercial leasing business may sign multiple
leases in a single day. They can do this because of the predictable ways in
which states govern lease transactions.
Uniformity
o Uniformity saves time in business law. When business owners rely on the
same laws to conduct business, they need to know that state agencies and
courts apply the laws in a uniform fashion. Judges frequently consider the
potential for uniformity when they interpret any area of business law.
Scope of Indian Business Law :
In the modern age, Business Law is not only confined to the business
community but also relates to every member of the society and the Contract
Act is as much applicable to the business as to the non-business community.
Besides business community a common man in his day to day experience
enters into a number of contracts. Business Law is incorporated in a number of
Acts, which follow to a considerable extent the English Business Law with
some reservations and modifications necessitated by the peculiar conditions
prevailing in India. In this way Business law has a fairly wide scope. The
government lays down the rules and regulations to run the business activities
smoothly.
The following laws are included in Business laws:
1. Contract Act
2. Sale of Goods Act
3. Partnership Act
4. Companies Act
5. Negotiable Instruments Act
6. Banking Companies Act
7. Insurance Companies Act
8. Carriers and Carriage of Goods Act
9. Commercial Securities Act
10. Patents and Copyright Act
11. Insolvency Act
12. Arbitration Act