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Legal Environment Essay

Legal Environment Essay


Chapter 3

Regulations & Commercial Law and Business Activities


  • Regulation

  What is a Regulation ?

  Why do we need a Regulation ?

  Who makes a Regulation ?

  • Definition of Regulation

Regulation is a form of governmental intervention to have control over economic affairs. It can be defined as:

“A specific set of commands – where regulation involves the promulgation [issuing] of a binding set of rules to be applied by a body devoted to this purpose”

Examples of regulations can be found in all governmental enforcing laws such as: Legal Environment Essay

Regulation: Banking Control Law

Issuer: Saudi Arabian Monetary Agency

Applied on: All Commercial Banks

Covers: All Banking Activities

  • Rationale of Regulations


Monopoly is a case when one seller produces for the entire industry. This product is considered unique and there is no substitute. There is restriction for a similar product to enter the market. For example, STC before establishing other companies, or its landline service. Monopoly negatively affects the market, where there is no room for competition, which is likely to result in higher prices. However, some large projects, such as, electricity and railway to be operated through one sole company. In this case, regulation, such as anti-trust law and competition law will control monopoly.

  • Rationale of Regulations

B.Windfall Profits:

If a large amount of profit may take place for some unplanned reasons rather than planned investment, such as increasing prices (i.e. properties). In this case, regulation may interfere to transfer some of this profit to the public by means of tax or by social activities.

  • Rationale of Regulations


It is a sort of spillovers, such as pollution caused by manufacturers. Regulation may interfere to eliminate such spillovers and to protect society suffering from such externalities.

D.Social Policy:

Regulation is used in a form of social policy’ to overrule individuals’ activities to prevent discrimination based on race, age or disability.

  • Rationale of Regulations

E.Information Inadequacies:

In order to have successful competitive market, companies are required to be transparent and to disclose information to the customers. To do so, regulation can enforce companies to make information more accessible, accurate and affordable. So, it prevents customers from having falsify information. It is likely to create healthy competitive market.

  • Rationale of Regulations. Legal Environment Essay

F.Continuity and Availability of Services:

Competition may result in a concentration of business within strongest companies. It may also concentrate services to rich and ignore poorest. Regulation may be used to sustain services through control prices and to produce socially desirable results and to remove unfair trade.

  • Rationale of Regulations

G.Anti-competitive Behavior and Predatory Pricing:

One role of regulation is to sustain competition and protect consumers from the ill-effects of market domination by outlawing predatory or other forms of anti-competitive behavior.

H.Public Goods and Moral hazard:

As the competitive market seeks profitability, consumers may suffer unfair services, not to affect their wealth, but to harm their health. For example, in private health services, consumers might expose to unnecessarily treatment or given an unsuitable drugs. With adequate regulation, all such moral hazard will be prevented. An example here is regulation imposed by “The Saudi Food and Drug Authority“.

  • Rationale of Regulations

I.Unequal Bargaining Power:

Sometimes, there is unequal ability of negotiation between parties, specially between employees and big firms, so unfair contract may be conducted, particularly in relation to some employment rights such as health and other benefits. The role of regulation in this case is to impose and safeguard such matters, particularly health and safety.

  • Rationale of Regulations

J.Scarcity and Distribution of wealth:

When some commodities are considered to be in short supply, regulation interferes to re-allocate the distribution and to control prices. Regulation also re-distribute of wealth between society by imposing taxes.

K.Rationalization and Coordination:

To squeeze the gap between big and small firms in one industry, regulation can impose standards and norms for such industry and coordinate the market. An example is anti-dumping regulation.

  • Rationale of Regulations


Regulation also can impose standards and norms to coordinate and balance between the demand of consumers for certain commodity and the future demand for next generations. An example of this is the consumption of woods and the promotion and organizing of planting. Legal Environment Essay

  • Sources of Regulations


An organization regulates standards for its membership (accountants). For example, Saudi Organization for Certified Public Accountants (SOCPA) is a professional specialized organization established under a Royal Decree. It operates under the supervision of the Ministry of Commerce in order to support professional accountants and auditors and all matters that might lead to develop their profession.

  • Sources of Regulations


Parliament imposes direct control over a number of industries by passing bills to lay down in considerable detail the limits of allowable conduct. An example, is Al-Shura Council.

C.Regulatory Agencies;

It is an agency that resolves disputes between related parties, promulgates rules and enforces those rules. Its regulatory work usually directed at a particular sector. An example of this is the General Authority of Civil Aviation (GACA).

  • Sources of Regulations

D.Local Authorities;

It is a local government (e.g. municipals) that provides local control in particular concerns such as:

–Developing and implementing flexible and responsive strategic plans which provide Jeddah and its associated divisions and centers with high quality innovative municipal services, as well as enhancing their economic and cultural development.

–Ensuring the sustainability of development.

–Protecting and developing the natural environment, doing the best to ensure the self-continuity of projects & the best use of resources.

  • Sources of Regulations

General Government Departments;

Ministries and their departments are authorized to issue regulations to control their activities and the activities of companies of private sectors that operate under their control. For example, Ministry of Health regulates standards for private hospitals. These include:

–Regulates standards for quality of health care provision for patience.

–Creates one basic body for formulating health policies, including health insurance services.

–Adopts general national health standards that concentrate on the main burdens of diseases, including transmissible diseases, nutrition, smoking, AIDS, accidents….

  • Sources of Regulations

Courts and Tribunals;

Judges may deliver a verdict in certain case to support the control of a governmental department or otherwise.

  • Scope of Applications:


Find out regulations that control commercial activities? Consumer Protection Regulation, Parties involved?

2.Banking and Finance;

Find out regulations that control Banking activities? Regulation of Controlling Exchangers, Parties involved? Legal Environment Essay

3.Food and Medicine;

Find out regulations that control Food and Medicine activities? Regulation of Licensing Medicine, Parties involved?


Find out regulations that control Professional activities? Regulation of Licensing Law Firms, Parties involved?

  • Sources of Regulations

5.Health Services;

Find out regulations that control Health Services activities? Regulation of Licensing Clinics. Parties involved?


Find out regulations that control Construction activities? Regulation of Licensing Construction Works. Parties involved?


Find out regulations that control Educational activities? Regulation of Licensing Private Schools. Parties involved?

–Commercial laws are rules that govern business transactions, such as those activities connected to the economy, (e.g. buying, selling, renting, and investing) of a firm or the commercial and manufacturing sectors of an economy.

–It focuses on the commercial transactions between business entities as well as between a merchant and his customers.

–It covers business organizations (corporations, partnerships, agencies, joint ventures, franchises, etc.), international trade, transportation, credit, banking, and finance.

  • Commercial Law: Definition and Principles:

–Commercial law is that branch of private law concerned primarily with the supply of goods or other services and businesses provided by merchants for profit.

–Commercial law is defined as “Areas of law having particular relevance to commerce and commercial transactions”.

–Also, “commercial law is the totality of law’s response to the needs and practice of mercantile community”.

–It is connected to the quickness, flexibility and simplicity. This means that its process of application should be flexible and done quickly and through simple procedures.


  • Commercial Law: Characteristics

1.Commercial law is pragmatic: commercial law is a way by which lawyer can solve problem, and formulate contracts as well as other legal instruments in order to meet the legitimate needs of the market.

2.It is responsive as it is developed in response to the needs of commerce.

3.It is a facilitator as it sustains the effectiveness of commercial transactions.

4.It is considered to be consequentialist, which means that a law is concerned with providing firm outcomes rather than normative.

  • Sources of Commercial Law:

–In some legal systems, commercial law can be found in one united codified rules.

–In others, commercial law is a sum of several laws and regulations issued by legislator and regulators, as well as traditions practiced by traders. Legal Environment Essay

–Also, there are some international conventions and treaties, standards and traditions that are adopted by local legal systems. Examples of these are: the United Nations Commission on International Trade Law (UNCITRAL), the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS).      

  • Commercial Law: Scope of Application:

–Commercial Contract (e.g. Sale of Goods);

–Traders and Commercial Registration (e.g. Traders’ Activities);

–Company Law; (e.g. Bankruptcy and Liquidation);

–Commercial Agencies; (Principal & Agent).

–Commercial Papers (e.g. Cheques, Bill, bills of exchange, Promissory note);

–Banking Law (e.g. Banking Capitals & Activities);

–Insurance Law (e.g. Banking Capitals & Activities);

–Foreign Investment Law (e.g. Investors Capitals & Activities).

  • Commercial Law and Regulations (Examples):

1.Banking Control Law, issued by the regulator: Saudi Arabian Monetary Agency, to be applied on all Commercial Banks.

2.Regulation of Controlling Exchangers, issued by Saudi Arabian Monetary Agency, to be applied on all Currency Exchangers.

3.The Law of Commercial Papers, issued by Ministry of commerce, to be applied on all Commercial Papers Users.

  1. The Law of Commercial Data, issued by Ministry of commerce, to be applied on all Companies.

5.Foreign Investment Law, issued by Saudi Arabian General Investment Authority, to be applied on foreign Companies.

6.Regulation of Licensing Clinics, issued by Ministry of Health, to be applied on all hospitals and clinics.

7.The Law of the Judiciary, issued by Ministry of Justice, to be applied on all Courts.

8.Regulation of Licensing Law Firms, issued by Ministry of Justice, to be applied on, all Lawyers

9.Regulation of Licensing Medicine, issued by Saudi Food & Drug Authority, applied on all hospitals, clinics and Pharmacies and related companies.

10.Regulation of Licensing Private Schools, issued by Ministry of Education, to be applied on all Private Schools.

Legal Environment Essay

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