Business Law

In its most basic sense, law is the body of rules and principles of con-

duct that are enforceable through sanctions. Within every society, rules

of conduct have evolved to maintain harmony and order. In more primi-

tive societies these rules consist only of customs and norms that are en-

forceable through informal social sanctions. As societies increase in size

and complexity, however, rules of conduct become formalized, usually

through government that adopts and enforces the rules for the society.

Although law preserves peace and stability, it is ineffectual unless society

develops a legal system – institutions and procedures for enforcing the

law. The legal system consists primarily of the courts. The courts serve two

important functions: they provide a forum and process by which those

who fail to conform to the law are punished by the government and they

provide a system to resolve disputes among private individuals who can-

not agree upon proper rules of conduct. In performing these functions,

the courts apply rules of law previously established by the government

or, in the absence of such rules, develop new legal principles to maintain

order. Courts thus impose sanctions against those who fail to follow

legal rules. The threat of these sanctions usually is sufficient to induce

compliance with the law.

The law governs the conduct of all persons including artificial per-

sons (such as corporations) as well as natural persons (human beings).

Because businesses are considered persons and, thus, members of soci-

ety, many of the legal rules and principles affecting business are merely

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general laws that affect all persons. For example, the rights and duties

of a property owner are established by general property law whether the

property is a factory owned by a business or a private residence owned

by an individual. Other legal rules have been established specifically to

govern the conduct of businesses and business relationships. The securi-

ties laws regulate the sale and trading of the stocks and bonds issued only

by businesses. Antitrust laws enacted to protect competition affect only

those in business.

Law both restricts and facilitates business operations. Some laws,

such as those prohibiting price fixing or requiring a safe workplace,

clearly limit business practices. In contrast, other legal rules are de-

signed to facilitate or encourage business activities. Few businesses, for

example, could operate without reliable and enforceable principles of

contract law that allow the sale, purchase, and exchange of goods and

services. Businesses would not invest in plant and equipment without

the assurance that their property rights in these items will be protected

by law. Although law clearly affects the operation of businesses, busi-

ness also influences the development of the law. For instance, the law

of negligence developed initially to provide compensation for injuries

resulting indirectly from the emergence of a modern, industrialized so-

ciety. Entire new areas of law—such as antitrust, securities regulation,

and environmental law—have been created in response to changing

business activities. As businesses increased production of goods, the law

of products liability developed to determine whether manufacturers and

distributors should be responsible for injuries caused by their products.

In short, business and law engage in a dynamic process, each shaping

and influencing the development of the other.

Despite the law’s importance as a source of rules of conduct, few

societies could function effectively if they depended solely on law as

a basis for social conduct. The morals—principles of right, good, and

fairness—of individual members of a society provide a more informal

and pervasive basis for standards of conduct. From norms, beliefs, and

values, individuals develop ethics, systems of moral standards and be-

liefs that address the most fundamental issues of social conduct such

as honesty, loyalty, fair treatment of others, and respect for human life

and dignity. Like law, ethics provide standards of conduct for individu-

als. Unlike law, however, ethics are not imposed or enforced by an ex-

ternal authority such as the government. Rather, ethical standards derive

from an individual’s internalized moral principles and are applied by the

individual. Thus, through law society imposes and enforces legal stan-

dards of conduct applicable to all of its members while through ethics an

individual develops and applies his or her own moral standards of con-

duct. The purpose of law then is to govern the conduct of all members of

society while ethics provide guidance for individual conduct.

Although law and ethics derive from different authorities and for dif-

ferent purposes, they often are related, especially in a democratic soci-

ety in which the people are the source of power. Law generally reflects

basic moral principles shared by members of its society because people

will not long comply with a body of rules that they consider wrong or

evil. Thus, a law prohibiting murder not only preserves order but also

reflects a widely held ethical belief that human life should be protected.

In other cases, however, legal rules are morally neutral—for example,

the law’s requirement that all vehicles be driven on the right side of the

road. In still other cases, the law may partially reflect moral principles

but may not fully incorporate an ethical standard as the legal standard.

Most people would agree, for example, that lying is immoral but un-

der American law, lying is illegal only in limited circumstances, such as

when it constitutes perjury or fraud. Similarly, most individuals believe

that it is unethical to break promises, but law enforces only those prom-

ises that meet the requirements of a legal contract.

Look through the text once again and say which statements are true.

Correct the false ones.

1. The law governs the conduct of only artificial persons.

2. Businesses are not considered persons.

3. The rights and duties of a property owner are established by gen-

eral property law.

4. Law only restricts business operations.

5. Business also influences the development of the law.

6. All societies can function effectively if they depend solely on law as

a basis for social conduct.

7. Ethics provide standards of conduct for individuals.

8. Ethics are imposed by an external authority.

9. Law generally reflects basic moral principles shared by members

of its society.

Text 3

Read the text. Be ready to explain the terms given in bold.

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