These are interesting times for businesses around the world. Today, an industry doesn’t only mean just the production of goods and services but the economies have turned economy.  So even as goods are manufactured in one country, they are packaged in another. Businesses are moving beyond the boundaries and expanding like never before. And this is where the legal system plays a really important role. So what is a legal system exactly?

A legal system is jurisdiction’s way of applying law which comprises of a constitution, primary legislation which is authorized by an authorized legislative body and a primary legislation authorized body and other code of law. The legal system of a country is extremely significant for international businesses. And there are several differences in legal systems which affect investors.

Understanding the legal system

It’s the law that defines business policies in a country. The law sets the framework for a country’s business practices.

Legal systems differ from one country to another. So on one hand China has a communist government where business laws are controlled by the government, on the other India is a democracy where laws protect the small investors and consumers. Although different countries have different regulations, the basic knowledge of civil law, common law, product safety laws, etc makes business decisions easy for people.

Different types of laws

Common Law. This is the legal system based on a country’s legal history and court rulings on cases in the past. It takes its form from the ways laws were applied in specific situations in the past. In case of common law, judges can interpret the law under specific conditions for unique cases. This is the legal system that United States, Australia and India use.

Civil legal system. Here the laws are based on a set of unchangeable written rules and specific codes. These are not exactly flexible which means judges have less power to apply the law. This is exercised in countries like Germany, France and Russia. Under this you also have countries with legal systems based on religious teachings. These are countries like Pakistan, Saudi Arabia, Iran and Middle Eastern nations. These countries follow Islamic laws, which are based on Koran.

Contract laws. There are business transactions which are regulated by contract. So basically, contract enforcement is governed by a contract law. So for international investors, it’s important to understand the contract laws which are sometimes drafted under common law system which can be quite detailed.

For any businesses to thrive in another country, a thorough knowledge of the legal system is a must. Once you know the legal aspects of it all clearly, you are in a better place to invest in the markets more cleverly.