Commercial Law: Meaning and Significance

In a broader sense, "law" means any rule of action. In a legal sense, law means those rules, standards, and principles governing and regulating social conduct that are recognized and enforced in a court of law. It regulates the actions of persons with respect to one another and with respect to the entire social group. Similarly, commercial activities are the professional relationships that people practice with the transactions of products, services, and money. And, to deal with such commercial transactions, commercial law is legislated.

What is the Meaning of Commercial Law?

Commercial law is a set of rules that regulates corporate contracts, hiring practices, and the manufacture and sale of consumer goods. Many countries have adopted civil codes that contain comprehensive statements of their commercial law. The occupation of business plays an extremely important role in the economy of any country. The act of engaging in business, which consequently results in the creation of jobs and opportunities, along with the generation of revenues for the economic sector, forms a significant part of nation−building.

Besides, "mercantile law," as defined by S. R. Daver, is the branch of law that is applicable to or concerned with trade and commerce in connection with various mercantile or business transactions.

Historical Background of Commercial Law

In medieval times, the community of merchants was a very small but powerful community. It is very important to understand why, in modern times, the first purpose of commercial law is to accomplish the needs of the commercial community and, in consequence of this, to facilitate commercial activity. Commercial law was created and developed by merchants to facilitate commerce between the members of this "aristocracy." Moreover, commercial law must be particularly flexible, and some rules can be manipulated in order to facilitate trades.

The law of agency is one of the most useful devices in order to realize the requirements of the commercial community− this entire field of commercial law (but we know that agency doesn’t refer solely to this context) has been created with the scope of helping merchants in their day−to−day activities, and it’s been created to give legal control to such a custom. This means, in other words, that, as often happens in commercial law, the agents were born before the law of agency.

Purpose of Commercial Law

Due to the powerful position business enterprises and organisations hold in the economy and the abundance of work opportunities that are growing the employment sector and generating profits, commercial law has gained a prominent position in the modern period. Commercial law is the area of the law that encourages the orderly handling of business affairs, makes it easier to regulate commercial operations in accordance with recognised legal precedents, and offers a means of resolving conflicts amicably. It makes up the component of the legal system that is most essential to generating national prosperity.

Additionally, commercial law helps create the conditions necessary for ethical and peaceful corporate interactions, both between different firms and in defending employee rights. Additionally, a solid understanding of numerous substantive areas of law is necessary for practicing commercial law. The importance of commercial law has increased as a result of the evolving business landscape. Due to the dynamic nature of the business environment, it is essential to have sufficient regulations in place to control all business organisations operating in society.

Content of Commercial Law

Inside this general concept of Commercial Law, we can distinguish different parts

  • The entrepreneur− rights, obligations and liabilities

  • Company Law

  • Contract

  • Trade securities

  • Bankruptcy Law

  • Competition Law

  • and Industrial Property

Objectives of Commercial law

Every day, we enter into contracts. Some of these agreements are made knowingly, such as those for the purchase or sale of any products, the acquisition of stock in a corporation, or the purchase of a piece of land. Contractual agreements establish each party's legal obligations as well as their rights under the law. Commercial law serves a variety of purposes, some of which are listed below −

A comprehensive set of standards is established universally − All business entities must abide by a comprehensive and standard set of rules known as commercial laws. Laws that are uniform aid in maintaining good communication between organisations and their many stakeholders, such as customers, suppliers, etc. Since the same law will apply to all business organisations belonging to a certain category, it creates an environment where enterprises may run smoothly and effectively.

Promoting industrial growth − Commercial laws support industrial progress by safeguarding and advancing business rights in addition to offering various compliance requirements for enterprises. As a result, Commercial laws facilitate the creation of capital, labour relations, licencing, ease of doing business, financial inclusion, etc., all of which contribute to economic growth.

Laying down the procedure for the establishment of business − The laws governing business give the necessary structure for establishing a business corporation and laying a solid groundwork for the business entity to succeed in the marketplace.

Enforcement of Rights − Commercial laws provide provisions for judicially enforcing the rights of all the parties involved in a business transaction. Businesses also have a right to defend themselves in case actions are filed by the central, state, and local bodies. Thus, businesses have been given the power to initiate legal action in case any legal compliance is breached by any outside party and are also allowed to defend themselves against the litigation filed by the government on behalf of the various stakeholders.

Contributes to the building of healthy business relationships − Laws dealing with business matters are extremely significant in the establishment of secure and effective business relationships amongst the concerned entities, as the formation of strong business ties is an absolute must for building a strong economy in a country.

Reduced possibilities of fraud − A robust and effective commercial law framework helps in reducing the possibility of fraud as the parties entering into contracts or dealing with each other are well aware of their rights and liabilities, which would prevent them from falling prey to the illegal or fraudulent activities of the other party.

Ethical conduct − Commercial laws also help in improving the conduct of businesses, as they have to be followed in letter and spirit. Therefore, business organisations have a responsibility to maintain ethical conduct while functioning in society.

Scope of Commercial Law in India

The scope of commercial laws is very vast. It includes the law relating to contracts, sale of goods, partnerships, companies, negotiable instruments, insurance, insolvency, carriage of goods, information technology, code of civil procedure, criminal procedure code, law relating to the right to information, the Constitution of India, the interpretation of statutes, an overview of the law relating to specific relief, arbitration and conciliation, torts, limitation and evidence, etc.

In relation to companies, there are multitudes of laws such as corporate laws, securities laws, competition law, foreign exchange laws, tax laws, etc. Right from the incorporation of a business entity till it attains finality, numerous laws are provided for every significant act that may be resorted to by a business entity throughout its life. Commercial laws also serve the interests of society at large. Laws dealing with insurance, environmental protection, taxation, etc., are extremely beneficial for promoting the rights and interests of the general public. "Commercial law" is a generic or umbrella term that provides a legal and regulatory framework for doing business. The business environment in any country is governed by its commercial laws, which are necessary for conducting business transactions and regulating business.


The diverse set of legislation enacted by the law−making bodies promotes effective regulation and promotion of business activities and aids in designing a framework that encourages smaller enterprises to expand their businesses while offering a level playing field. Thus, commercial laws play a significant role in shaping the economy of the country.

Frequently Asked Questions

Q. What other areas are close to Commercial Law?

Following are the major fields of law close to commercial law −

  • Legal aspects of computing

  • Ecommerce Law

  • Privacy law

  • Property law

  • Tax law

Q. What is commercial law?

Commercial law or business law comprises the whole set of laws related to trade and sales. It includes laws on business contracts, sale of goods, banking, insurance, finance, partnership, bankruptcy, and taxation.

Q. What is commercial law based on?

Commercial law is centered around the sale and distribution of goods and financing of specific transactions.

Q. Is commercial law civil or criminal?

First, it is important to establish that corporate lawyers practise commercial law, which is a division of civil law. Broadly speaking, this area of law focuses on laws and regulations that govern trade, commerce, sales and merchandising, as well as the businesses and individuals who are involved in those activities.