When a nation moves from a state-controlled economy toward free enterprise, it must develop a new set of business laws. If you could start from scratch, what kind of business law system would you adopt¾a civil law system or a common law system? What factors should be considered in deciding the business regulations to impose?

Question

What will be an ideal response?

Answer 1

Each system has its advantages and its disadvantages. In a common law system, the courts independently develop the rules governing certain areas of law, such as torts and contracts. This judge-made law exists in addition to the laws passed by a legislature. Judges must follow precedential decisions in their jurisdictions, but courts may modify or even overturn precedents when deemed necessary. Also, if there is no case law to guide a court, the court may create a new rule of law. In a civil law system, the only official source of law is a statutory code. Courts are required to interpret the code and apply the rules to individual cases, but courts may not depart from the code and develop their own laws. In theory, the law code will set forth all the principles needed for the legal system. Common law and civil law systems are not wholly distinct. For example, the United States has a common law system, but crimes are defined by statute as in civil law systems. Civil law systems may allow considerable room for judges to develop law: law codes cannot be so precise as to address every contested issue, so the judiciary must interpret the codes. There are also significant differences among common law countries. The judges of different common law nations have produced differing common law principles. The roles of judges and lawyers under the different systems should be taken into account.

Among other factors that should be considered in establishing a business law system and in deciding what regulations to impose are the goals that the system and its regulations are intended to achieve and the expectations of those to whom both will apply, including foreign and domestic investors.