Legal factors affecting business

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Legal factors affecting business include all regulatory and law determinants that can negatively or positively affect results of market actions and decisions of management of company functioning in particular country. International companies must analyze and identify those factors (legal environment) independently for every state they function. Legal factors analysis is integral part of every strategic analysis method including PEST analysis, STEEP analysis, PESTEL, PESTLE and other derivatives of strategic business environment analysis. It should be noted, that legal environment is constantly changing, laws are not set in stone and may change according to political and international climate. Legal factors are closely associated with ethical factors affecting business.

Legal factors connected to tax and customs regulations

Tax and customs regulations are important legal factors that can affect businesses. These regulations can vary depending on the country or region in which a business operates, and can have a significant impact on the financial aspects of a business.

Tax regulations can include laws related to income tax, sales tax, and property tax. Businesses must comply with these laws and file accurate and timely tax returns. Failure to do so can result in fines and penalties.

The factors in this category include:

  • country tax code (may be different in every country served by business),
  • tax restrictions for particular types of business,
  • export and import restrictions,
  • tax relief for some types of products or businesses promoting development,
  • taxes and customs imposed on consumed goods may influence demand,
  • individual income tax, corporate income tax,
  • overall tax and fiscal policy (excise duties),
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Customs regulations refer to laws related to the import and export of goods. These regulations can include tariffs, quotas, and rules related to the classification of goods, as well as compliance with international trade agreements. Businesses that engage in international trade must comply with these regulations and may need to work with customs brokers or freight forwarders to ensure compliance.

It is important for businesses to stay informed about relevant tax and customs regulations and to consult with legal and financial experts to ensure compliance and minimize financial risks.

General economic policy

General economic policy refers to the overall economic strategy of a government and can include policies related to taxation, spending, monetary policy, and trade. These policies can have a significant impact on businesses and can affect factors such as consumer spending, interest rates, and inflation.

For example, a government's monetary policy, such as setting interest rates, can affect the cost of borrowing for businesses and consumers, which in turn can impact investment and spending decisions. Similarly, tax policies can affect a business's profitability and cash flow.

Trade policies, such as tariffs and trade agreements, can also affect businesses, particularly those that engage in international trade. Changes in trade policies can affect the cost of goods and services, as well as access to foreign markets.

The factors in this category include:

  • monetary policy,
  • trade policy regulating trade in particular region (trading quotas, restrictions),
  • individual and corporate property rights,
  • government control on business activity (approval, licenses, concessions),
  • promoting specific businesses and products (environmentally friendly goods, healthy products, housing, etc.)
  • banning or limiting specific businesses and products (guns, explosives, drugs, products harming for environment, etc.),
  • laws involving environmental protection (emissions, waste disposal, recycling, etc.)
  • unfair competition laws, antitrust laws,
  • specific regulations of finance, banking and insurance companies,
  • reporting laws for companies operating in the stock market,
  • public accounting standards
  • copyright and patent protection regulations (intellectual property laws, etc.)
  • privacy and data security laws (cyber fraud protection, impersonation protection, etc.),

It is important for businesses to stay informed about relevant economic policies and to consult with financial experts to anticipate and adapt to potential changes that may impact their operations.

Laws and regulations related to employees protection

Employees protection refers to laws and regulations that protect the rights of employees and provide for safe and fair working conditions. These legal factors can include:

  • anti discrimination laws (race, religion, sex, age, harassment, etc.),
  • health and safety as work (work breaks, work time and shifts, safety equipment, clothing, etc.),
  • work environment regulations (temperature, hygiene, facilities)
  • protection against dismissal,
  • trade unions regulations,
  • fair and minimal wages regulations (welfare, etc.),
  • minimum contract requirements and mandatory contract elements,
  • mandatory health and social insurance requirements,
  • laws involving employment of foreign workers and managers,
  • anti immigration laws,
  • health care laws and mandatory health care insurance,
  • retirement laws, retirement plans and mandatory insurance,

It is important for businesses to stay informed about relevant employees protection laws and regulations and to consult with legal experts to ensure compliance and minimize legal risks.

Legal factors involving consumer protection legislations

Consumer protection refers to laws and regulations that protect the rights of consumers, and ensure that they have access to accurate and fair information when making purchasing decisions. These legal factors can include:

  • Truth-in-advertising laws: Laws that prohibit false or misleading advertising and require businesses to disclose any material information that may affect a consumer's decision to purchase a product or service.
  • Product safety laws: Laws that require businesses to ensure that their products are safe for consumers to use and that they meet certain safety standards.
  • Warranty and refund laws: Laws that govern the terms under which products can be returned or refunded and how warranty claims are handled.
  • Data protection laws: Laws that govern how businesses collect, use, and protect personal information of consumers.
  • Consumer complaint laws: Laws that establish procedures for consumers to file complaints and seek redress for grievances against businesses.
  • Consumer credit laws: Laws that govern the terms and conditions of consumer credit, including interest rates, fees, and credit reporting.
  • Age restrictions

It is important for businesses to stay informed about relevant consumer protection laws and regulations and to consult with legal experts to ensure compliance and minimize legal risks.

Check also other:


Legal factors affecting business — recommended articles
Regulatory data — Uninsurable risk — STEEPLE analysis — Opportunities and threats — Examples of threats — Political factors affecting business — STEEP analysis — Operational impact — Organizational costs

References

Author: Krzysztof Wozniak

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