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What is Legal Environment?

In practice, Government regulates all important components of the economy. Government generally tries to control the entry, working, selection of resources and their uses in business situations. On these lines, government prepares legal environment of the business.

However, it is the duty of the government to develop regulatory framework in such a way which creates conductive environment necessary for business activities. Conductive environment encourages entrepreneurial activities in satisfactory way.

Factors of Legal Environment

The main factors of legal environment are as follows:

1. Determining Areas
2. Regulation of Entrepreneurial Functions
3. Regulating Results of Entrepreneurial Activities
4. Regulating Relationship among various Segment of Economy

Determining Areas

Government determines all those areas and conditions under which entrepreneurs undertake their entrepreneurial activities. Under this arrangement, entrepreneurs may be required to take permission or license from the Government before moving into entrepreneurial activities.

Similarly, they are also supposed to take prior permission in availing public facilities and resources. Simple permission/ approval arrangement encourages entrepreneurs to opt for more entrepreneurial activities.

Regulation of Entrepreneurial Functions

Whenever entrepreneurs start their work or their business units or got admitted in the business then Government helps them in accelerating the pace of operations and also regulates the operations as per requirements.

In this system, we indicate all those controls which prohibit the general functions, efforts and performance. So, Government from time to time directs and regulates the managerial functions of the entrepreneurs.

Regulating Results of Entrepreneurial Activities

Public regulations are also applicable on all entrepreneurial activities. Regulations with regard to volume of profit, disposal of profit, exhaustion of excess payments etc. are also helpful in creating legal environment. If these regulations are flexible and simple, entrepreneurs may find themselves in more active situation in their entrepreneurial behavior.

Regulating Relationship among various Segment of Economy

Government formulates rules, regulations and enactment of separate Acts for regulating the mutual relationship among the different components of the economy. It helps in avoiding conflicts in entrepreneurial interests or concentrating economic powers in few hands.

For example, certain restrictions on appointment of directors on the Board of Directors, abolition of different types of holding companies, regulation of labour laws or takeover codes or corporate governance etc.

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