This article has been written by Ascharya Katoch, a student of Delhi Metropolitan Education, Guru Gobind Singh Indraprastha University, New Delhi.
INTRODUCTION
In order to know about the role of business laws and corporate governance in business development it is important to know what exactly do we mean by the term company.
The Companies Act 2013 defines a company under Section 2(20) as: “A company incorporated under this act or any previous of the company law.” A company is a separate legal entity and has a limited liability. Persons voluntarily comes together and contributes in the capital of a country.
According to the common law, a company is a ‘legal person’ or a ‘legal entity’. In order to run the company and to meet its end whether political, social or economical a company requires certain laws in order to regulate its proper functioning therefore the corporate governance plays a vital role in the business development. The main aim of corporate law is to formulate the activities of corporations whereas the main aim of corporate governance is to balance the interests of different take holders in the business activities.
Lord Justice Lindley has defined a company as “An association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business and who share the profit and losses arising there from.”
In Bihar Chamber of Commerce and Industry the Ex Vice President ,Hamid Ansari had pointed out that ‘Rule of Law’ is a pre requirement in order to strength the economic growth. It also helps to maintain stability and predictability.
HISTORY OF CORPORATE GOVERNANCE AND BUSINESS LAW
In the late 1990s the idea of corporate governance have increased. It was associated with the rapid concern in the corporate risk areas. It is one of the important concepts which is highly used by big and small companies. It continues to be very concerned with these corporate risk areas. However, the concepts surrounding it are becoming more broadly applicable and useful, for both the smallest and largest organisations. It is a unique and a global idea and will become universally applicable once these companies and organisations are established on moon and other solar systems. Corporate governance as a concept is extremely pertinent everywhere that people organise themselves into structures, and particularly where these structures have mixed obligations to owners, staff, and customers. Before 1991. When Economic Policy were not introduced the Companies Act, 1956 lacked provisions later on with the introduction of various reforms and policies led to changes in the investment climate.
Business Law is also known as corporate law or commercial Law. Business law is the collection of legislation that controls the rights, interactions, and conduct of organisations and people involved in trade, sales, and other forms of commerce. It is sometimes regarded as a subset of civil law because it deals with both private and public law problems. Business law have two broad categories the regulation of commercial entities by the law of company ,partnership, agency, and bankruptcy and the regulation of commercial transactions by the law of contract and related fields.
ROLE OF BUSINESS LAW IN BUSINESS DEVELOPMENT
Each company is built on the fundamentals of business law. The process of starting a company involves numerous legal formalities, leases, and permits. A business law attorney is knowledgeable about all relevant laws and can help the firm establish its operations successfully. For a business to run efficiently, legal contracts are required. Respecting regulatory limitations is crucial. The organisation receives assistance from experts with in-depth knowledge of this topic in order to draught legal agreements that are more beneficial and error-free. Understanding this will allow one to join the internal legal teams that every business has. Legal contracts are essential to the smooth operation of a company. Respecting statutory restrictions is essential. The protection of shareholders’ rights is aided by business legislation. Through these laws, lawyers can defend both the rights of the company and the interests of the customers. They can deal with instances involving constitutional documents, minority shareholders, and arbitration settlement. Laws governing business require organisations to uphold their current codes of ethics and behaviour. Business owners are aware of their obligations and rights thanks to the regulations in existence. Similar to how customers and employees do, they become conscious of their rights and obligations. The business runs more smoothly as a consequence, and customers, employees, and employers are all satisfied.
CORPORATE GOVERNANCE
Corporate governance acts as a guiding agent to promote and direct various operations of a company along with leading to ethical decisions for the benefit of all. The need for good governance began with the failed energy giant Enron, and its bankrupt employees and shareholders. Traits like leadership, authority, ego, and wealth are provided by corporate governance. It also helps to lower the risks and achieve the desired outcomes. It involves holding of meeting and interaction of the stakeholders with other members in shaping corporate performance. A good corporate governance also helps to build such traits in the co workers. Board of Directors plays a major role in a company’s corporate governance as they have a greater social responsibility towards the customers, employees and shareholders. Corporate governance means rules, practices and processes by which a firm is directed in controlling the interests of various stakeholders. Growing number of scams in stock markets, banks and other financial institutions have led to the foundation of good governance. Also, Growing globalisation have attracted more foreign investors and as a result good governance is requires to comply with the foreign rules and regulations.Policies of a company can play a major role in the overall development of a company. .Corporate governance is required as it helps to promote integrity and leads to a positive performance , greater accountability. Helps to avoid hurdles that may come in the path.There are plenty of benefits of good governance. It will lead to efficient processes and more consistency, more financial viability and greater accountability.
RELATIONSHIP OF BUSINESS LAWS WITH GOOD GOVERNANCE
Good and efficient policies and enforcement of law will ultimately lead to long term financial stability and ultimately more income. As a result the company will be easily able to gain the trust and there will be minimal chances of losses and risks. Two elements play a vital role in the legal system operated in India
1)Firstly, Law plays an important role in a firm as it tells us about the finances and the capital for its working and operation.
2) Secondly, Legal origin is one of the important parameters for the country’s development. Before 1991.
The companies can increase their economic growth and development by introducing several reforms and enactment in Foreign Exchange Management Act 1999 and setting up of Securities Exchange Board of India 1992 .
Business laws and corporate governance are a set of laws, regulations and practices that are required by a company as it helps to administer a company. Without a set of proper rules and regulations it is impossible for a company to survive. It is like the backbone of the Company without which it cannot exist. It helps to enhance internal efficiency and provide long term economic benefits to stakeholders and helps to determine the rights and responsibilities of agents of an organisation. If there are no rules and regulations in an organisation will lead to frequent fights and quarrels among each other.
REFERENCES
- https://byjus.com/question-answer/what-is-meant-by-the-word-company-describe-its-characteristics/
- https://www.britannica.com/topic/business-law
- legalserviceindia.com/legal/article-10401-role-of-business-laws-and-corporate-governance-in-business-development.html
- https://www.soolegal.com/roar/role-of-legal-department-in-corporate-governance