7 Business Law (H/617/0736)

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Question :


Unit Learning Outcomes:

1) LO1 Explain the nature of the legal system.

2) LO2 Illustrate the potential impact of the law on a business.

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Answer :


The presence of a legal system may be traced back to the era of ancient Egyptian civilization during 3000BC. Egyptian legal system had a civil code detailed into twelve books which governed every person in the civilization. In the modern world, the law can be termed as a system of certain well-defined rules and regulations developed by the governments or societies to govern the behaviour of the members of the society or public as a whole. The law is designed in a way which is equal for everyone. Equality, transparency, and safety are the main fundamental principles of law. The legal system shows the way of working and implementation of current laws in the country.  The legal system is responsible for shaping the economic, social, and political aspect of any country and the world as a whole. An efficient legal system deals effectively with all the crimes, social and business relationships. A detailed explanation is presented on the nature of the legal system along while illustrating the potential impact of law in the business environment.

P1 Different sources of law

Law can be defined as a set of rules and regulations which are created and imposed by the government or regulatory bodies of society to regulate various actions or behavior of the members of the society. The sources of law can be categorised in various heads. These are- a)Formal and b) Material. Formal sources of law provide a law with validity and force. The state is the only authority to provide the force and validity to the law. This type of sources of law includes the will of the state, will of the people and the judgments of the courts. The relevant judgments of the courts also form the basis of law in certain cases. Material sources may be d3e4fined as the substance of the law to which the force and nature is given by the formal source. Political, social, traditional and economic relations may be treated as examples of material sources. The material sources of law can be classified into Legal and Historical sources. Historical sources may be termed as historical significance and the reason behind the formation of such law. Historical sources of law are only sources which have legal implications on anyone. Foreign decisions and juristic verdicts are some of the examples of historical sources. 

Figure 1: Sources of law

(Source: Elghuweel et al. 2017)

Considered as a significant source, legal source of law is the primary basis on which the legal rules are made. Legal sources provide authenticity to the formation of law. Legal sources may be classified into Legislation, Precedent, Agreement, and Professional opinion. The legislation is used to regulate or authorize something while precedent includes the jurisdiction of courts and agreements form the global laws which are persuasive in nature along with professional opinion which may be taken into consideration (Wheeler, 2018).

P2 Role of the government in lawmaking and how statutory and  common law is applied in the justice courts

There are three powers through which law comes in force, these are legislative power, executive power, and juridical power. Through the legislative power, of the government, any law comes into force. Whereas through the executive powers the government implicates the laws formed and lastly with the help of juridical powers the justice courts provide its verdict. In the same context Al-Azri (2016) cited that the main activities of the Parliament are lawmaking. Through the process of debate and decision making a law is formed. During this parliamentary process, debates take place on various parameters of law, ideas get challenged, any amendment is made if necessary and at last either it gets accepted or rejected. Parliament performs the legislative function along with they also have the power to amend, approve or reject the government draft bills. The process of lawmaking varies depending upon the parliamentary structure of a country. In Westminister systems, the executive branch of the government drafts most of the draft laws while the parliament review, amend and pass laws. In presidential systems, individual MPs poses a greater opportunity to produce draft laws. In general, the government can make law bills reviewing various reports. It also uses its power in Parliament to some extent to pass the bill. The government can make the proposal of the lawmaking if it observes any legal parameter needs to be made on a particular issue. The government may propose legislation to deal with a particular event in the society which needs a particular legal regulation or need to be in the radar of a particular law.

Statutory law basically refers to the written laws which are enacted by a legislative body. Unlike the other laws, these are strictly construed by courts. Here the strict construction refers that the courts are not able to read between lines of a statue in order to liberalize its application, rather they will be only bound with its express terms. Statutory laws follow the usual process of legislation as a result of legislative enactments. The effectiveness of the statutory bill comes into action on a set date which is written into the bill.

Common laws are those which are formed on the basis of precedent verdicts of the courts. Common law basically is an unwritten set of laws. Sometimes in the unusual cases, the outcomes cannot be determined based on the existing written rules of law. In these type of cases common law, that is a previous verdict of a similar case, can be used as a reference to make the decision. Common law is a history of previous cases which can be used as the basis for future cases. Common law also can be referred to as case studies. This type of law completely relies on the detailed verdict of the similar situation as there is no written legal code is available to apply for the same. Lower courts follow the verdicts of the higher courts as an example set for similar cases (Siems, 2016). Though it provides stability and consistency in the judicial system, the lower courts also can modify verdicts if they are outdated or the precedent is considerably different from the present one.            

While providing the verdict on a certain case the justice courts can follow statutory law, common law or a combination of the both, if necessary. The amendment of statutory law is only possible when the Parliament give a nod to do so and it is a time consuming and lengthy process to do so. Though in case of common law it completely depends upon the precedent verdict on similar cases or it can be modified if the Honourable Justice of the court feels it necessary.            

P3 Illustration on how the company, employment, and contract law has a potential impact on business

All the businesses operating in Oman are governed by Commercial Company’s code, Commercial Register Law and Commercial Agencies Law. All the laws in Oman are given assent by the Royal Decree. Oman has very stringent laws which are frequently amended to make it easy for doing business. As per the rules, though only Omani citizens are allowed to do business in Oman, foreign nationals are also allowed to conduct business with the consent of the ministry of commerce and industry. On the occasion of any business dispute occurring, it is resolved in the specially designed commercial courts. All the foreign companies willing to do business in Oman are required to comply with the Foreign Capital and Investment Law. Any person who is a non-GCC (Gulf Cooperation Council) having an interest in the capital of any Omani company is required to get a license from the Ministry of commerce and industry. The non-GCC person has to invest around OMR 150000 for starting the business. The participation of a person in a company’s capital who is not an Omani is limited to 70% only (Al-Azri, 2016). Foreign investment may be allowed up to 100% with the discretion of the council of ministers. 

The business vehicles available to corporate are:

  • General Partnership
  • Limited Partnership
  • Joint Venture Company
  • Limited Liability Company
  • Joint Stock Company
  • Holding Company

The rules and regulations imposed by the government, govern both the small and big businesses equally. The executives of the government strive to formulate a policy or a law to govern businesses so that corporate operates ethically and legally. The business laws also affect the employer-employee relationship along with imposing relevant guidelines on the parties participating in international trade. Employment rules and regulations such as Oman Labour Law govern every private employee in the economy. New advanced labour law was formulated in 2012 which laid down new ways of protecting the employees of the private organisations. Timely payment of wages, better working conditions, mandatory leaves, and workmen compensation are few of the elements of the new legal system along with laying the code of conducts for the employees to maintain. The business owners need to comply with the employment laws in order to avoid applicable fines. In case a company hires an international employee, then the company also needs to follow the rules of the Foreign Residency Act (Ali, 2016). 

Since every business needs to have a contract in place so as to operate efficiently on a daily basis. Contract laws form the basic fundamentals of operating business. All the civil transactions in Oman are controlled by the Oman Civil Transactions Law. In case of a dispute between parties, any of the party can lodge a complaint against the other party if there is a proper contract in place which is duly stamped by the concerned authority. Thus the contract law can be a protecting vehicle in case of any major corporate conflict (Ganotra, 2018). Professional contracts can be used for similar future transactions by businesses. Signing a contract is a way of formalising the business relationship. The concepts of misrepresentation of facts and fraud are one of the most important elements of the contract law in Oman along with termination of contracts. For example, when A and B have agreed to do business together, they must have agreed on certain terms and conditions. These terms and conditions are needed to be formalised through signing a contract where each and every term of business will be mentioned in detail. This detailed mentioning of the terms and conditions of conducting business in the form of a legal contract will prove to be helpful in case of a breach of the contract by any of the parties as both A and B are bound legally by a formal and legal contract. A contract provides the foundation of trust and confidence in the mind of either party that the other party will perform as and when agreed.


Thus it may be concluded that legal systems in Oman and the world as a whole are developed to ensure safety, security, stability, and happiness to the people globally. The legal system affects both individuals and businesses. All the companies operating in Oman whether national or international have to comply with the strict and flexible rules of the company, employment and contract laws. Specific guidelines have been given to corporate and the customers to protect themselves from commercial frauds. The government plays a major role in the lawmaking process where statutory and common laws are designed. The judgments of the justice courts may be used for future references in similar cases. An efficient legal system is necessary for conducting business activities fruitfully and also for the sustainable development of the economy.