Business Law – Complete Notes in Long Answers

Business Law is a subject that deals with the laws regulating trade, commerce and industry.
It provides a framework to ensure fairness, justice and discipline in the business world.
Below is a detailed explanation of its topics in simple words.

Introduction to Law
Law can be described as a system of rules made by the state and enforced by the courts to
maintain order, peace, and justice in society.
It governs the relationship between the state and its citizens as well as the relationship
between one citizen and another.
In simple words, law is a way of controlling human behavior to prevent disorder and
injustice. Jurist Salmond defined law as any principle recognized and enforced by the courts
in the administration of justice.
Law therefore acts as a formal mechanism of social control because it keeps individuals
disciplined, settles disputes, and ensures fairness in society. Without law, society would fall
into chaos since everyone would act according to their personal wishes without regard for
the rights of others.

Sources of Law
The word “source” means the origin or place from where something begins. Sources of law
are the ways through which laws come into existence and gain their authority.
According to Salmond, there are five main sources of law. The first source is legislation,
which means the laws created by parliament or the legislative body.
These laws are passed after discussion by representatives of the people and are enforced by
the state. The second source is precedent, which refers to judicial decisions of higher courts.

When a court gives a decision and lays down a principle, that principle must be followed in
future cases of a similar nature. The third source is custom and usage.
Customs are old practices followed by people for a long time. To be valid, customs must be
reasonable, definite, continuous, and not against morality or existing law.
The fourth source is convention, which refers to agreements or treaties made between two
or more parties or countries. Although not as strong as legislation, they are binding on the
parties involved.
The fifth source is ordinances and regulations made by the executive branch of government.
These are temporary rules but they play an important role in running day-to-day
administration.

Sources of Law in the Maldivian Context

In Maldives, the main sources of law are the Constitution, which is the supreme law of the
land, laws passed by the Majlis or Parliament, Islamic Shariah, which has a strong influence
especially in matters of family and morality, and judicial precedents, which are decisions of
the courts.
These combined sources form the legal system of Maldives.

Classification of Law
Law can be divided into several categories. Public law governs the relationship between the
state and individuals, while private law governs the relationship between private
individuals.
Civil law deals with disputes concerning rights such as property or contracts, whereas
criminal law deals with offenses such as theft or murder and their punishments.
Substantive law defines rights and duties, while procedural law lays down the methods for
enforcing those rights in court. Municipal law is the law of a particular country, while
international law governs relations between different states.

Meaning and Features of Business Law

Business law is the part of law connected with trade, commerce, and industry. It is also
called commercial law or mercantile law.
In simple words, business law regulates business activities and ensures that trade is carried
out in a fair and legal manner. The main features of business law are that it is one of the
fastest growing branches of law,
it regulates industry, trade, and commerce, it covers areas such as contracts, companies,
banking, insurance, and arbitration, and it protects the rights of the business community.
Business law is essential because it creates a healthy business environment that encourages
growth and prosperity.

Importance of Business Law

Business law is very important for the growth of trade and economy. It helps in establishing
and running business smoothly and increases business transactions by creating trust
between parties.
It supports the development of capital markets, contributes to national economic growth,
and creates employment opportunities.
It also encourages investments by creating a safe and fair environment. Business law
regulates the behavior of businessmen and officials, protects public health, safety, and the
environment, and helps to settle commercial disputes.
It makes businessmen aware of their rights and duties and creates the foundation for
national development.

Law of Contract
A contract is a legally binding agreement between two or more parties. In Maldives,
contracts are governed by the Contract Law No. 4 of 1991.
An agreement becomes a contract when one party makes an offer, the other accepts it, and
there is consideration, which means something of value exchanged between them.
Not all agreements are contracts; for an agreement to become a contract it must create legal
obligations, not just social promises, it must be made with free consent, the parties must be
legally capable of contracting, and the consideration and object must be lawful.

Offer and Acceptance

An offer is a proposal made by one party to another with the intention to create legal
obligations. An offer must be certain and made seriously.
Offers can be express, meaning made in words, or implied, meaning understood through
conduct. They may be specific, made to a particular person, or general, made to the public at
large.
Sometimes cross offers are made when two parties unknowingly make identical offers to
each other, but these do not form agreements. A counter offer, where the offeree changes
the terms of the offer, is not acceptance and therefore no contract is formed.

Classification of Contracts
Contracts can be classified in different ways. By formation, they can be express contracts
made in words, implied contracts understood through conduct, or quasi-contracts which
are not real contracts but treated like contracts by law to prevent unfairness.
By performance, contracts may be executed, where both parties immediately fulfill their
promises, or executory, where performance is to take place in the future.
By the parties involved, contracts can be bilateral where both sides have obligations, or
unilateral where only one party has obligations.
By formalities, contracts can be formal if all legal requirements are fulfilled or informal if
requirements are missing.
By legality, contracts may be valid if they satisfy all legal conditions, void if they do not,
voidable if one party has the option to cancel them, unenforceable if they have technical
defects such as missing registration, or illegal if they are against the law.

Discharge of Contract
A contract is discharged when the obligations created by it come to an end. This may
happen by performance when both parties complete their promises, by substituted
agreement when the original agreement is replaced, by lapse of time when the legal time
period expires, by operation of law, by impossibility of performance, by accord and
satisfaction, or by breach when one party refuses to perform.

Capacity to Contract
Not everyone can enter into a valid contract. Parties must have the legal capacity. A minor,
who is under eighteen years, cannot make a valid contract except for necessities.
Agreements with minors are void. Persons of unsound mind such as lunatics or drunkards
cannot contract unless they are in a lucid state where they can understand and make
rational decisions.
Idiots who lack mental capacity cannot contract at all. Some individuals are disqualified by
law, such as alien enemies or convicts during imprisonment.

Unlawful Agreements
Some agreements are unlawful and therefore void. An agreement is unlawful if it is
forbidden by law, if it defeats the provisions of law, if it is fraudulent, if it causes injury to a
person or property, or if it is immoral or against public policy.
Courts do not recognize such agreements because they are harmful to society or individuals.

Company Law
A company is a business organization with a separate legal identity from its owners. This
means the company continues to exist even if owners change.
The main forms of business are sole proprietorship owned by one person, partnership
owned by two or more people, and corporation which is a separate legal person owned by
shareholders.
The formation of a company goes through four stages which are promotion, registration,
raising of capital, and commencement of business.
The Memorandum of Association is the company’s charter and contains its objectives, while
the Articles of Association are its internal rules.
The prospectus is an invitation to the public to invest in the company by purchasing shares
or debentures. A corporation is treated as a legal person that can own property, enter into
contracts, sue, and be sued.
Share capital is the money raised by issuing shares. Directors are responsible for managing
the company and they act as trustees, agents, and partners.
Sometimes the court lifts the corporate veil, which means looking beyond the company’s
separate identity to hold individuals responsible in cases of fraud, tax evasion, or illegal
activities.

Law of Partnership
Partnership in Maldives is governed by the Partnership Act of 1996. It is defined as a
relationship between two or more persons who agree to share the profits of a business
carried on by all or any of them acting for all.
Partnerships must be registered and can have a minimum of two and a maximum of twenty
members. The partnership agreement contains details such as name, address, capital,
objectives, partners’ names, profit sharing, and management.
The main features of partnership are that there are two or more persons, an agreement
between them, a business to be carried on, profits and losses to be shared, and the principle
of mutual agency, meaning each partner acts as both principal and agent.
There are different types of partners such as actual partners who actively manage, sleeping
partners who only invest, nominal partners who lend their name, and partners in profits
only who share profits but not losses.
Employment Law
Employment law governs the relationship between employer and employee. An employee is
a person working under a contract, and an employer is the person or organization who
hires and pays them.
Forced employment is prohibited, which means nobody can be forced to work against their
will except in cases of court orders or emergencies. Discrimination in employment is also
prohibited.
Employers cannot discriminate on the basis of race, religion, gender, politics, social status,
marital status, or disability in matters of hiring, pay, promotion, training, or dismissal.
Employment agreements can be of three kinds. A definite term contract is for a fixed time
and cannot exceed two years. An indefinite term contract has no fixed end and continues
until terminated.
Specific work contracts end when the work is completed. Every employee must also be
given a written job description which includes details of the employer and employee, salary,
job title, duties, working hours, leave entitlements, and rules for discipline.

Conclusion
Business law is therefore an important part of legal studies as it covers contracts,
companies, partnerships, and employment matters.
It ensures fairness and transparency in business activities, protects the rights of individuals,
encourages investment and growth, and supports national development.
Without business law, trade and commerce would not be secure and society would lack
trust in business dealings.