CHAPTERI

Principles of Business Law

ILaw affects every aspect of human life. We live in a socicty and
We have to make various kind of transaction in our daily life. This subject deals
With the matters of various business lives. In order to understand the legal
Implication of business activities, it is nccessary to examine particularly certain
Basic features of principles and laws related to business transaction.
Meaning of Business
1.1
“Business”: Business mcans activity of buying nd selling; ‘commerce’
Or “trade’. As Commerce develop beyond the most clementary stage merchants
Being to carry on their business in association. There had been the law of
‘merchant, which includes the law of contract, which is the very basis of the Law
Of Business.
Historically, the term “Business” referred to activities or interests.
From the early period of mankind, men had the idea of conducting business in
Different ways. People establish businesses in order to perform economic
Activities. With some exceptions (such as cooperatives, corporate bodies, non-
Profit organizations and institutions of government), businesses exist to produce
Profit. In other words, the owners and operators of a business have as one of
Their main objectives to receive or generate a financial return for their time,
Effort and capital.
Most legal jurisdictions specify the forms that a business can take, and a
Body of commercial law has developed for each type. Some common types
Include partnerships, corporations (also called limited liability companies), and
Sole proprietorships.
One can classify businesses in many different ways. Service businesses
Offer intangible products and typically have different, usually smaller, capital
Requirements thań manufacturers. Distributors will have different inventory
Control needs than a retailer or manufacturer.
An industry can consist of a group of related businesses, such as the
Entertainment industry or the dairy industry. This definition resembles one of
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The more general mcanings of “business”, and the terms business and industry
Sometimes appear interchangeable.
Under the law of Partnership, ‘Business’ includes every trade,
Occupation znd profession. Generally ‘Business’ can be taken r
Organization that sells goods or provides services. Business may be carried out
Individually, for example, Sole-proprietorship. It is a kind of business owned by
An indiviđual, which usually operates under the name of the business owner.
Hence a person going into business may do so alone as a single
Proprietor may join with others. In the present day business world iis
Enterprise has many advantages over single or sole proprietorship.
For one reason, an individual does not ordinarily have the large amount
Of capital need for a modern business enterprise. Another reason will be that of
The size 2nd complexity of business problems usually makes if advantages to
Join win ohers who will share responsibilities and business functions.
The most common forms of joint business enterprises will be that of
Patnerships and the enacted law to which they are subject forms Corporations.
The legal đifferences between a partnership and a corporation will be discussed
Lzter.
1.2
Business Ethics
People may believe that the only purpose of doing business is to make
Profi Bt actually its purpose is to serve the general welfare of the mankind. In
Fas business is an integral comnponent of our social system.
As to the relationship of business ethics to the whole, it is important firs.
0 understand, rnoral values, and moral judgments. In the second place, it 1s
Be undertood that he word ‘Ehics is synonvınous with the word Moraliy’
Neaning rigt or good. Wihen we use the word ethical or moral conduct
Ies aing in ways lhat arc proLapted Ey motives and supported by reaso
Tht re caloulztrd to pzoduce “rig.t’ or ‘Tair’ treatment of others and the ‘good’
Life, Business ethics is tc main stream of cthical concerns. It has a special
Epplicaion w issucs corfronting people in business.
Business ethics is the branch of ethics that examines ethical rules and
Principles vithin a comercial context; the various moral or ethical problems
That can arisc in a busincss seting; and any special duties or obligations that
Apply to persons who are engaged in commerce. Gencrally spcaking, business
Ethics is a normative disciplinc, whercby particular cthical standards are
Assumed and then applicd. It makes specific judgemcnts about what is right or
Wrong, which is to say, it makes laims about what ought to be done or what
Ought not to be donc.
It may not say exhaustive, but some typical issues addressed in business
Ethics include:
Accounting and financial standards
Advertising deccption
Black market sales
Bribery
Competition versus cooperation
Corporate crime, including insider trading, price fixing, and price
Discrimination
Professional conduct
Marketing, sales, and negotiation techniques
Product issues such as-patent and copyright infringement, planned
Obsolescence, product liability and product defects .
Business Responsibility
1.3
There are two ways of responşibility in Businessperson. One is
Moral responsibility, and the other is legal responsibility. Under the
Recent business concept it is also a social responsibility in business
Transaction.
The mobility of employment, capital, products and technology is
Making business increasingly global in its transaction and its
Effects. Laws and market forces are necessary but insufficient guides for
Conduct. Responsibility for the policies and actions of business and
Respect for the dignity and interests of its stakeholders are fundamental.
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J.31 Moral Responsibilities of Business Persons
People in busíness world are naturally having the same kind of moral
Responsibilities that everyone else does, und also the artificial persons such as
Corporations have moral rsponsibilities, Chief Justice Jobn Marshall in the
Fanous Dartmouth College Case ponted out that “a corporation is an artificial
Beíng, invisíble intangihle and existing in contemplation of lavw.”
Althovgh corporations are legal persons, creatures of the state, they
Do have the moral responsibilities to be observed in the conduct of their
Business.
Company generally is one or more incorporations to bring corporate
Ertíty into existence in agreement vith the terms and conditions as prescribed
By the lan, The Memorandum of Association will describe the purposes and
Structure of the corporation, while the Articles of Association represents the
Permission given by the law to conduct business in the corporate form. The
Pepie vho operzte them must give corporations life and vitality. In that sense,
The employees are morally responsible for their own conduct. It is therefore
Clear tht there is the moral responsibility of the corporatioa for the collective
Tetvir of the corporate entity.
Hence totth business people and corporations have the prina fucie mora!
Đties u Gblizdions. Man of ordinary prudence always acts knowingly and
Freeiy, and thz vinlation of the following dutics will amount to moral wrong.
Honesty (truthfulness): lying is nderstood to consist of
Deliberae false statenents to deceive others.
Promie keping, (abiding by agreements)
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Layalty (Others must have faith and confidence upon your
3.
Business)
Fairness (Justic)
D’irg no harm. (Causing no nepliyenoe)
1.32 Bnial Responcitities of Business Persons
The wwtd busitess community should play an important role in
Tiynng uwnmis snd cial cndiions, Business is often the first contact
Betwccn nations and, by thc way in which it causes social and cconomic
Changes.
The value of a business to socicty is the wealth and employment it
Creates and the markctablc products and scrviccs it provides to consumers at a
Reasonable price commensurate with quality. To crcate such value, a business
Must maintain its own cconomic hcalth and viability, but survival is not a
Sufficient goal.
Busincsses have a role to play in improving the lives of all their
Customers, cmployces, and sharcholders by sharing with them the wealth they
Have çreated. Busincsses cstablished in forcign countries to develop, produce or
Sell should also contribute to-the social advancement of those countries by
Creating productive employment and helping to raise the purchasing power of
“their citizens. Businesses also should contribute to human rights, education,
Welfare, and vitalization of the countries in which they operate. Businesses
Should contribute to cconomic and social development not only in the countries
In which they operate, but also in the world community at large, through
Effective and prudent use of resources, free and fair competition, and emphasis
Upon innovation in technology, production methods, marketing and
Communications.
While accepting the legitimacy of trade secrets, businesses should
Recognize that sinccrity, candor,. Truthfulness, the keeping of promises, and
Transparency contribute not only to their ovn credibility and stability but also to
The smoothness and efficiency of business transactions, particularly on the
International level.
A business should not :participate in or condone bribery money
Laundering, or other corrupt practices: indecd, it should seek cooperation with
Others to eliminate them. It should not trade in arms or other materials used for
Terrorist activities, drug traffic or other organized crime.
Customers
Business responsibilities to customers are to :
1. Provide our customers with the highest quality products and services
Consistent with their requirements;
 2. Trcat our customers airly in all aspects of our businesstransactions,
Including a high level of service and remedies for their dissatisfaction;
3. Make every effort to ensure that thc health and safcty of our customers, as
Well as the quality of their cnvironment, will be sustaincd or enhanced by our
Products and servicc;
4. Assure respect for human dignity in products offercd, marketing, and
Advertising; and
S. respect the integrity of the culture of our customers.
Employees
Business responsibilities to cmployces are to:
1. provide jobs and compensation that improve workers’ living conditions;
2. provide working condiions that respect each employees health and
Dignity;
3. be honest in communications with employees and open in sharing
Information, limited only by legal and competitive constraints;
5. Listen to and, where possible, act on employee suggestions, ideas, requests
And complaints;
5. engage in good faith negotiations when conflict arises;
6. avoid discriminatory practices and guarantee equal trcatment and
Opportunity in areas such as gender, age, race and religion;
6. Promote in the business itself the employmcnt of differently able people in
Places of work where they can be genuincly useful;
8. protect employces from avoidable injury and illness in the workplace;
9. encourage and assist employees in devcloping relevant and transferable
Skills and knowledge; and
10. be sensitive to the serious unemployment problems frequently associated
With business decision, and work with governments, employee groups, other
Agencies and each other in addressing these dislocations.
Owners or Investors
Business responsibilities of Owncrs or Investors are to:
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1. Apply professional and diligent management in order to secure a fair and
Competitive return on our owners’ investment
2. Disclose relevant information to ownerlinvestors subject only to legal
Requirements and competitive constraints;
3. conserve, protect and increase the owners/investors’ assets; and
4. respect owner/investors’ requests, suggestions, complaints, and formal
Resolutions.
Suppliers
Business responsibilities of Suppliers are to:
1. Seek fairness and truthfulness in all our activities, including pricing,
Licensing, and rights to sell;
“2. Ensure that our business activities are free from coercion and unnecessary
Litigation;
2. Foster long-termn stability in the supplier relationship in return for value,
Quality, competitiveness and reliability;
3. Share information with suppliers and integrate them into our planning
Processes;
5. pay suppliers on time and in accordance with agreed terms of trade, and
6. seek,.encourage- and prefer suppliers and subcontractors whose
Employment practices respect human dignity.
Competitors
Competitors have a responsibility to:
1. foster open markets for trade and investment;
2. promote competitive behaviour that is socially and environmentally
Beneficial and demonstrates mutual respect among competitors;
4. Refrain from either seeking or participating in questionable payments or
Favours to secure competitive advantages;
4. respect both tangible and intellectual property rights; and
5. refuse to acquire commercial information by dishonest or unethical means,
Such as industrial espionage.
Communities
Businesses have a responsibility in the communities to:
Support pcace, sccurity, diversity and social integration;
2. respect the integrity of local cultures; and
3. be a good coporate citizen through charitable donations, educational and
Tural contributions, and employce participation in community and civie
Affairs.
1.3.3 Legal Responsibilitics of Business Persons
With regard to the legal responsibility in terms of business transactions,
There must be the source of authority so as to solve the legal issues legal
Authority is extemal: you have to scarch “outside yourself”. Moral authority i
Internal. From the moment- of our birth we have to abide by the moral
Injunctions such as dos’ and don’ts.
The law advances a definite authority for resolving legal disputes and an
Enforcement mechanism by enacting the laws, judicial decisions and
Administrative rules, etc.
One should always consider how others should be treated. People in
Business as in other spheres of life have been influenced by the concept of
Reciprocal treatment. Such treatment of others is the key to one’s expectations
Of treatment in return.
It should be remembered that there are two main guidelines of the public
Policy role of business;
() The Moral Minimum
Neither the market, nor the society which nurtures it, nor other moral
And social ideals which bind our nation togetler, can survive unless the normns
Of honesty, promise keping, loyalty, faimess ønd doing no harn infuse our
Public policy.
(i) The Priority of Social Justice and the Public Good
Business people always look into having efficier.cy or weal)
Producing measures, i.e., to get morc profit in their b:Siness. But some reail)
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Marketable but harmful products should not be produced in the interest of
Public health.
Thus when efficiency and so-called social justice are in harmony, our
Public should promote the common good in the most efficicncy way.
1.4 Business Legal Liability
Before considering the spccific arcas of law governing the activities of
Business organizations, it must first of all consider the branches of law which
Are most likely to affect those in business and certain basic principles of
Liability.
It is a basic function of the law to set out the circumstance in which a
Person may be required to answer for hiş actions. Legal liability describes a
‘situation where a person is legally responsible for a breach of an obligation
Imposed by the law. Such obligations may arise from the operation of either the
Civil or criminal law.