Under a democratic set up, like in our country, the political environment comprises three vital political institutions: 1. Legislature 2. Executive 3. Judiciary.

1. Legislature:

Legislature is the most powerful institution. The main powers are vested in the legislature are; in today’s economies, particularly of developing countries like India, relevance of a protective legal environment for Business assumes immense proportions as it is the very foundation of every investment decision.

The business has to be within the law of the Land. Every aspect of business from its birth till death is covered under the laws to ensure that not only profit is earned in a justified and fair way but also to ensure that in the attainment of business interests the interest of each person is fully protected and the profits of business are distributed in a manner beneficial to the society.

2. Executive:

Government is the executory body of the laws which are framed by the legislature.

According to E. V. Schneider “Government is that institution by which men everywhere, seek to order society, that is, to control the structure and functioning of society.”

According to Musselman and Hughes “Government is the centre of political authority having the power to govern those it serves.”

In simple words, the role of the Government is to shape, direct and control the business activities. The translations of the objective of any laws to the reality depend as much upon the law itself as on its implementation. The implementation of the law in its word and spirit only can ensure the realisation of its true objectives.

Indian constitution provides for a federal setup with powers being divided between central and the state governments. The powers and functions of central and state government are described in the constitution.

3. Judiciary:

The third political institution is judiciary. The judiciary sees to it that the exercise of authority by the executives is according to the general rules laid down by the legislature, it may declare that any particular order issued is, infact, ultra vires (beyond the authority). It is the power of the Judiciary to settle legal disputes that affect business considerably.

Following are a few examples of the disputes which are often referred to courts for settlement and the verdicts are sought:

(i) Disputes between employers and employees

(ii) Disputes between employer and employer

(iii) Disputes between employee and employee

(iv) Disputes between employers and the public

(v) Disputes between employers and the government