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You are here: IGCSE Business External Environment Revision Notes Legal environment factors affecting business

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Legal environment factors affecting business

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How government controls business activity?

Governments control the business activities is many ways both direct and indirect. We have already covered government’s economic policies. However, government can control business activities in a more direct way. These are as follows:

Controlling what to produce

In order to safeguard the interest of the community government may ban or limit the production of certain goods and services. For example, selling of guns, explosive and dangerous drugs are illegal in many countries. Moreover, Goods which harm the environment are also totally banned or strictly controlled in many countries, e.g. aerosol cans that use CFCs which has been banned because of their damaging effect on the ozone layer.

Employees Protection legislations

Government may pass laws to protect the interest of employees such as

Laws against unfair discrimination at work and when applying for jobs. There is no unfair discrimination on the basis of Race, religion, sex, age, or colour.

Legislations for health and Safety at work:

  • To protect workers from dangerous machinery.
  • Workers should be provided with proper safety equipments and clothing.
  • A reasonable workforce temperature is maintained for workers.
  • Proper hygienic conditions and washing facilities are provided.
  • Workers get adequate breaks between shifts.

Protect employees against unfair dismissal


Business can not dismiss the workers because they have joined a trade union or for being pregnant. There should be proper warning before dismissing a worker otherwise it will be treated as unfair dismissal.

Ensure fair wages for the employees

In many countries, government makes it mandatory to have a written contract of employment. It contains the details of the wage rate; working hours, deductions (if any) and other necessary details regarding working conditions. Minimum wages paid to different types of workers are also determined by the government.


Consumer Protection legislations

Most of the countries have consumer protection laws aimed at making sure that businesses act fairly towards their consumers: A few examples are

Weight and Measures Act: goods sold should not be underweight. Standard weighting equipments should be used to measure goods.

Trade Description Act: deliberately giving misleading impression about the product is illegal.

Consumer Credit Act: According to this act consumers should be given a copy of the credit agreement and should be aware of the interest rates, length of loan while taking a loan.

Sale of Goods Act: It is illegal to sell products with serious flaws or problems and goods sold should conform to the description provided.

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