In all jurisdictions, it’s important to note that the law supposes that everyone knows what the law is, and this doesn’t exclude entrepreneurs. As a person who owns or runs a business, you must understand the legal principles that guide your craft and the provisions of the law in relation to the different aspects.

Business law is the area of the law that makes provisions for the rights and duties of entrepreneurs and the process of forming, establishing, operating, and dissolving the different categories of organizations. The aim is to ensure that organizations are run in a manner that serves owners, potential clients, and the state as a whole. The rights and interests of all parties involved are safeguarded, and the business community can carry out different levels of transactions freely. Business law also helps to develop the economy of the country and lays down operational management guidelines that establish coordination between communities.

The legal environment of every company is provided for under business law, and it is a sum up of the activities that the government uses to regulate commerce and trade. It includes policies of taxation, market competition, economic controls, and trade participation.

The comprehensive legal environment of a business is important for improving the overall organizational process. Here, we highlight the importance of the legal environment to the development of your business and the several factors that affect it.


What the legal environment of business means

In the first place, the business environment is characterized by a set of conditions, and they include economic, legal, social, political, and institutional conditions. These conditions are also categorized into two different positions, as they can either be based on internal or external events.

  • Internal environment

This provides for factors that are controlled internally by the business. It includes capital, raw materials, manpower, and management. As they are controlled by the internal environment, the governing body can make changes to these events without any need to consult a higher body. From time to time, changes are made to internal policies to maintain or improve profitability.

  • External environments

This category of factors goes beyond the control of the entrepreneurs. The government makes provisions for policies, economic functions, tax, political, geological, and legal factors, and social events that control the business externally. Human safety and the protection of the environment are also important aspects of these external environments, and without them present, the legal trade environment will be defective.

For the legal trade environment, we are concerned about the key areas where the law affects the business. Essentially, the legal environment has three components. The first is concerned with the applicable laws and administrative government orders. The second one is the existing judicial system of the country, and the last one is the adaptability and flexibility of the applicable laws.


Characteristics of a legal trade environment

The legal environment of business is defined as law-related proceedings and matters that business owners have to consider to run their operations efficiently. Business law is drawn from different areas, including federal procedures, state laws, and custom-imposed rules. If these categories of law apply to a company, then it implies that the owners have to comply with them to ensure seamless transactions. Otherwise, legal consequences will follow their non-compliance.

There are a number of grounds that require legal support to ensure the smooth running of business operations. They include financing, business licensing, taxation, employment, and employee relations, labor protection, and customer safety. The major characteristics of the typical legal trade environment are:

  • Freedom from external threats.
  • Cross-departmental connection and communication.
  • Dynamic nature of business.
  • A loss-prevention policy.

The importance of a legal environment for business development

Every category of the trade environment plays an important role in the overall health of the business. That is why those looking to pursue a career in business administration by enrolling in an SBU online MBA at an accredited university such as St. Bonaventure University, will learn about the importance of providing the right legal environment for businesses.

The legal environment has a number of roles in relation to a business organization and how it develops, and some of them are discussed below.

  • Business regulation

The legal environment helps to regulate business activities such as commerce, trade, and industry in such a way that reduces any form of fear in the environment. It guarantees that your franchise is operated in a stable manner and compliance with governmental regulations.

  • Protection of rights and interests

Business law sets out to protect the rights of all stakeholders within the business community. Legal liability is also effectively taken care of by the unique legal environment.

  • Settlement of disputes

Similarly, the legal environment is concerned with settling disputes that may arise during transactions and providing justice as required. It also makes provisions for ethical decisions to be made by owners, all in a bid to align with the provisions of the law.

  • Creation of a favorable environment for all stakeholders

The legal environment looks to create a favorable trade environment by providing facilities such as legitimacy, control, security, and incentives for the entire business community.


Factors affecting the legal environment of business

The legal environment is a combination of several different segments. Each aspect has individual objectives and legal conditions that need to be met. They also affect the business as a whole in several ways and ensure they abide by the state policies and regulations for product or service marketing, sales, employment, inventory management, and a lot more. Here are the legal factors that affect businesses.

  • Organizational law

Organizational law is a major determinant of how a business entity will be regarded and operated from the standpoint of the law. First, a company that is organized and recognized as a legal entity is subject to the laws of that state, and its conduct and operations are provided for accordingly. Then, this body of law dictates how businesses are created, managed, and dissolved. There are various types of business structures, each with specific rules to follow. Whether it becomes a corporation, limited partnership, partnership, limited liability partnership, or limited liability company, it will take on specific legal status, advantages, and drawbacks.

  • Employee and labor protection

Federal laws and regulations are concerned with the interests of employees. Therefore, there are a number of laws that determine their relations with employers, and they are referred to as employee or labor protection laws. These laws have a number of ways through which they affect the legal environment of a business, and they include employee wages, workplace safety, protection against unfair discrimination, employee classification, empowerment schemes, payment methods, and overtime scheduling.

At both state and national levels, different legislations have been passed to protect members of the labor force, particularly with regard to unfair discrimination. Employee protection ensures that race, sex, religion, or age are no basis for discrimination in the workplace. Entrepreneurs who fail to comply with these employment laws will have legal challenges to face.

  • Health and safety regulations

An aspect of employee protection that tends to be separately highlighted is health and safety regulations. When employees are hired, it’s compulsory to ensure that the safety and health aspects are taken care of. Health and safety regulations are so important that if any organization refuses to comply accordingly, employees have the right to institute legal proceedings against them. Here are a few regulations that work concerning employees’ working conditions:

  • Adequate protection from dangerous machines and industrial equipment.
  • Proper working equipment and clothing during working periods.
  • Reasonable air temperature during work hours.
  • Maintenance of the highest level of hygiene.
  • Periodic free time for employees.
  • Securities and tax laws

Financing and taxation are major aspects of an organization that need to always be put into consideration. While securities law deals with the investment aspect of the business, tax laws, on the other hand, deal with its liability to pay taxes based on revenue earning and location. The regulations aim to ensure proper handling of dealings with investors who seek investment loans in compliance with federal policies and security laws. Specifically, limited liability companies are particularly concerned with securities laws due to the involvement of multiple third parties.

Businesses also need to ensure that employment, sales, income, and federal taxes are taken care of, as it can go a long way in determining its future.

  • Consumer safety and protection

Consumer safety laws are particularly important for operations with products that affect the health and safety of consumers. In these situations, such organizations need to get a special license to make it work. Pharmaceutical and food companies are concerned with consumer protection laws and must ensure that whatever product they put out is safe for both humans and the environment. Ingredients that have the possibility to be harmful should be avoided at all costs, and this factor of the business legal environment is concerned with safety.

  • Environmental protection

A consumer’s social environment will include environment, culture, and family, and as a result, all manufacturing units need to maintain these legal protection rules cautiously. The essence of this legal environment factor is to ensure the safety factors of the environment and avert harmful substances.

Manufacturing companies and production houses need to ensure that they follow all levels of legal terms meticulously. Consumers have the right to institute proceedings against such businesses if, by any chance, some of the environmental protection requirements have been breached.

  • Trade protection

Trade protection laws are concerned with protecting businesses from getting monopolized. The laws provide a level of assurance to ensure that all things are in the right place. Unlike consumer and environmental protection, this category of the legal trade environment protects both parties involved – that is, the interests of the company itself and the rights of the consumers. As far as trade protection laws are concerned, every business’s individuality should be protected and kept out of unfair competition.

  • Immigration laws

It may not appear like it on the surface, but immigration laws significantly impact the legal environments of organizations today, particularly those in the US. As a result of the influx of immigrants into the country over the last couple of years, conversations about employment and contracts have also begun to include immigrants.

Immigrants provide relatively low labor cost options for employers, and it’s not uncommon for employers to choose this option. For these reasons, immigration laws become an essential aspect of the legal environment. Immigrants contribute a significant amount to the GDP of the US, and it’s only fair that they are put into consideration in the trade and economic areas.

  • Government procurement laws

The government is instrumental in how businesses are run. Therefore, provisions must be made for them to become an important aspect of the legal trade environment. Through contracting rules, regulations, and procedures, government bodies are able to dictate commercial operations. This is aimed at encouraging the participation of small brands and also creating means of promoting their services and products. Government procurement laws provide information that helps small businesses make proposals with minimal risks, which in itself involves a number of legal factors.

  • Contract laws

This category of law handles the mutual agreement that exists between two or more partners. When parties enter into a contract, it shows that they have intentions to enter into legal relations, so when anyone falters, the contract laws give the government the authority to protect the rights of the aggrieved party.

Contract laws typically require the existence of two parties, an offer, an acceptance of consideration, and the intention to enter into legal relations. Once these factors are present, whatever contract is entered into will be binding.

  • Intellectual property laws

The final factor of the legal trade environment is intellectual property law. It protects the creations of the mind, such as inventions, designs, artistic and literary work, and every similar piece used in commercial transactions. They are usually presented as patents and copyrights of the company or those involved in it.

This has interestingly become one of the most renowned areas of legal dispute affecting businesses today. This is because technological and digital advancements have pushed for more creativity among creators today, and there’s a dire need for the protection of this category of people.

Violation of intellectual property laws can become huge offenses and are triable at courts of competent jurisdiction. Some examples of intellectual properties are brand names, domain names, logos, illustrations, or symbols. If the intellectual property of one organization is used to gain an unfair advantage by another without a prior agreement, then violation charges can be brought against the defaulter.



Simply put, the legal factors of a business are those factors that directly impact the general trade environment as a direct result of government policies and laws. Taxes are imposed on organizations to ensure that commercial brands help build their community and contribute their quota to the nation’s economy. Consumer and environmental protection are in place to protect them from any form of exploitation, in the same way that employee and labor protection laws are put in place with the workforce in mind.

All of the different factors of legal business play an important role in determining its operative mode, the relationship and provisions on the ground for employees, and the impact that products and services have on consumers and other third parties. To ensure that you grow a healthy franchise, you should always put the legal environment of your business into consideration. It helps to serve the owners, workforce, consumers, third parties, and the economy as a whole.

Running an organization in this current age is a lot more than having useful products or providing the right services. It is also about understanding the different factors that can make or break your venture in the long run. Make an intentional decision to consider these vital legal checkpoints while proceeding with your business plans today!