1. Meet Your Legal, Ethical, and Social Obligations
Chapter 14
Meet Your Legal, Ethical, and Social Obligations
Entrepreneurship & Small Business Management

2. Understand Your Legal Rights
Laws affect almost every aspect of your business, including your dealings with employees, customers, suppliers, and governmental bodies.
Laws affect where you can set up your business and how much of its profits you can keep.
Advertising claims you make about your products or services also are governed by laws.
As an entrepreneur, you will have to become familiar with the government regulations that affect your business.
You will also need to know when to contact a lawyer.
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3. Regulations That Promote Competition
As you learned in Chapter 3, most businesses face competition.
To make sure that competition is fair, federal, state, and local governments have enacted various laws.
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4. Antitrust Legislation
Beginning in 1890, laws were created that made monopolies in certain industries illegal.
A monopoly is also called a trust, so these laws were called antitrust laws.
Antitrust laws also ban other types of business activities that do not promote competition.
It is important to become familiar with these laws so that you do not do anything illegal. These laws include:
Sherman Act
Clayton Act
Robinson-Patman Act
Wheeler-Lea Act
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Sherman Act
The Sherman Act makes it illegal for competitors to get together and set prices on products or services they sell.
This means that you and your competitors cannot together decide to keep prices at a certain level.
Discussing prices with competitors is illegal.
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Clayton Act
The Clayton Act states that it is illegal for a business to require a customer to purchase one good in order to be able to purchase another good.
A distributor of computers, for example, cannot make customers purchase software when they purchase a computer.
Customers must be free to buy only the products or services they want.
I would like to purchase a refrigerator.
In order to purchase the refrigerator, you must also purchase the stove.
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Robinson-Patman Act
The Robinson-Patman Act makes it illegal to charge different prices to different groups of non-retail consumers.
If you own a retail store, you can charge different prices to different customers, such as giving discounts to senior citizens.
If your business sells to other businesses, you must offer the same terms to all of those businesses.
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Wheeler-Lea Act
The Wheeler-Lea Act bans unfair or deceptive actions or practices by businesses. False advertising is an example.
Under this act, businesses also are required to tell consumers about possible negative features of their products.
Drug companies, for example, must let people know of any side effects they may experience from using a medication.
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9. Government Agencies that Protect Competition
The Antitrust Division of the Justice Department and Federal Trade Commission are two government agencies that make sure competition remains fair.
Other agencies, such as the Federal Aviation Administration and the Food and Drug Administration, oversee business practices in particular industries.
The Just Department’s Antitrust Division takes legal action against any business it believes has tried to monopolize an industry. It also prosecutes businesses that violate antitrust laws.
The Federal Trade Commission (FTC) administers most of the laws dealing with fair competition. Some of the kinds of activities the FTC monitors include false or misleading advertising, price setting by competitors, price discrimination, and misrepresentation about the quality, composition, or place of origin of a product.
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10. Regulations That Protect Businesses and the Public
Government regulations were enacted to protect both businesses and the public.
Patent, copyright, and trademark laws protect businesses.
Laws that protect the public include licensing, zoning, and consumer protection laws and building codes.
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11. Laws that Protect Businesses
Three special government regulations are legal rights to creators of inventions, literary or artistic works, and brand names.
The regulations give businesses or individuals the exclusive right to profit from what they have created.
No one else can use their creations to make money.
If you violate another person’s patent, copyright, or trademark, you could be sued.
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Patents
A patent is a legal document that gives an inventor the sole right to produce, use, and sell an invention.
A patent lasts for 20 years.
During this period, no business or individual can copy or use the patented invention without the patent holder’s permission.
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Copyrights
A copyright is the legal right to exclusive publication, production, sale, or distribution of a literary or artistic work.
All books must have a copyright.
A copyright lists the publisher and the year in which the work was published.
Copyrights remain in effect for 70 years after the death of the author.
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Trademarks
A trademark is a name, symbol, or special mark that can be used only by certain businesses.
Products that are trademarked are identified by the ™ or ® symbol.
Examples include Band-Aid® and Kleenex®.
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15. Laws that Protect Consumers
In addition to laws that protect businesses, the government also has regulations that protect customers.
They include licenses, zoning regulations, and consumer protection laws.
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Licenses
State and local governments require some businesses to have licenses.
Beauty Salons, Restaurants, and Health and Fitness Centers are just some of the companies that must carry licenses.
If you own a business that requires a license, you may have to have regular inspections by state and local authorities.
Failure to meet certain standards could mean the loss of your license and closing of your business.
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Zoning Laws
Local governments often establish zoning regulations that control what types of buildings can be built in what areas.
In many communities, certain areas are zoned for residential use only.
This means that business buildings cannot be built in those areas.
Other areas are zoned only for commercial businesses or for multiple purposes.
All businesses must obey zoning regulations.
Before you choose a location for your business, you will have to make sure that the area you have selected allows your type of business to operate there.
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18. Consumer Protection Laws
A variety of laws and government agencies protect the public against harmful products.
You will have to make sure that the products you manufacture or sell meet all consumer protection standards.
The Federal Food, Drug, and Cosmetic Act bans the sale of impure, improperly labeled, falsely guaranteed, and unhealthful foods, drugs, and cosmetics.
The Food and Drug Administration (FDA) enforces this law.
The FDA has the power to enforce producers to stop manufacturing products that are unsafe.
The Consumer Product Safety Act of 1972 sets safety standards for products other than food and drugs.
When the Consumer Product Safety Commission determines that a product is unsafe, it can make businesses recall the product and stop selling it.
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19. Consumer Protection Laws (continued)
The Truth-in-Lending Act of 1968 required all banks to calculate credit costs in the same way.
When a consumer takes a loan, the lender must provide two types of information about the loan’s cost – the finance charge and the annual percentage rate.
The finance charge is the total cost a borrower must pay for a loan, including all interest and fees.
The annual percentage rate is the finance charge calculated as a percentage of the amount borrowed.
These numbers help consumers evaluate alternatives and determine the best option.
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20. Consumer Protection Laws (continued)
The Fair Credit Billing Act is part of the Truth-in-Lending Act and helps consumers correct credit card billing errors.
Consumers who feel they have been incorrectly charged must write to the credit card issuer and explain why they think the charge is wrong.
The company must reply within 30 days and resolve the dispute within 90 days.
While the disputed charge is being investigated, it cannot accrue interest.
If it is determined that the money is owed, interest can then be charged.
The law also gives the consumer a method for resolving problems relating to product quality.
The first step in dealing with a product of inferior quality bought with a credit card is to try to resolve the problem with the merchant.
If it cannot be resolved, the consumer can withhold payment to the credit card company until the matter is settled.
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21. Regulations That Protect Employees
In addition to protecting businesses and the public, the government has enacted laws that protect employees.
These laws involve hiring, firing, time away from work, working conditions, and minimum wages.
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22. Workplace Discrimination
Laws exist to guard against discrimination in the workplace.
Their purpose is to give every person an equal opportunity
Workplace discrimination laws include:
Equal Employment Act
Americans with Disabilities Act
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Equal Employment Act
This act bans discrimination against employees based on age, race, color, national origin, religion, or gender.
This law means that you cannot turn a person down for a job based on any of these factors.
It is illegal for you to discriminate against or fire an employee based on these criteria.
An employee who has been discriminated against illegally can file a complaint with the Equal Employment Opportunity Commission (EEOC).
The EEOC enforces the laws against discrimination in the workplace.
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24. Protection For Disabled People
The Americans with Disabilities Act (ADA) bans discrimination against employees based on disabilities.
It requires businesses with 15 or more employees to accommodate the needs of employees with disabilities, even if the firms currently have no disabled employees.
Further, all businesses open to the public must be accessible to people with disabilities.
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25. Safe Working Conditions
The mission of the Occupational Safety and Health Administration (OSHA) is to protect the welfare of workers by saving lives, preventing injuries, and protecting the health of America’s workers.
Federal and state governments work in partnership with more than 1 million working men and women who are covered by the OSHA Act of 1970.
This act requires that employers maintain safe working conditions for their employees.
To comply with OSHA regulations, you will have to keep records that show the steps you have taken to protect the welfare of your workers and keep your workplace safe.
If your employees work with dangerous equipment or substances, you will also have to provide the workers with special training.
If OSHA suspects that your business has unsafe practices, its inspectors will examine your facility. You may be required to make changes.
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26. Family Medical Leave Act
This act requires businesses with more than 50 employees to provide employees up to three months of unpaid leave if a serious health condition affects the employee, the employee’s child, or the employee’s parent or spouse.
The Family Medical Leave Act also makes it possible for male and female employees to take leave in the event of a birth or adoption of a child.
To be eligible for such leave, an employee must have been employed by a business for at least one year.
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Wages
The Fair Labor Standards Act establishes the maximum number of hours employees can work.
It includes rules for children under the age of 16 who work and rates for overtime work.
The act also outlines the national minimum wage.
Congress reviews the minimum wage every few years and makes adjustments if necessary.
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Get Legal Advice
You may be able to learn about some of the laws that affect your business.
However, you may also need to hire a lawyer.
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Contracts
A contract is a legally binding agreement between two or more persons or parties.
As an entrepreneur, you will enter into contracts as you start and operate your business.
Contracts can be with suppliers, landlords, clients, and government agencies.
For a contract to be considered legally binding, certain elements must be included when the contract is drawn up.
These elements are agreement, consideration, capacity, and legality.
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30. Contracts (continued)
Agreement occurs when one person offers or agrees to do something and the other party accepts.
Consideration is what is exchanged for the promise.
Capacity means the parties are legally able to enter into a binding agreement. Minors, intoxicated persons, and insane persons cannot enter into a binding contract.
Legality means that a contract cannot have anything in it that is illegal or that would result in illegal activities.
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31. Learn about Laws Affecting Your Business
You should learn some basics about the law to handle a few issues yourself.
If you are thinking of starting a home-based business, you can check the zoning laws and land-use restrictions rather than hire a lawyer to do it.
Books and the Internet are good sources of information, or you could take a course in business law.
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Hire a Lawyer
At some point, you probably will need a lawyer’s advice.
Your Chamber of Commerce may have a list of lawyers who specialize in small businesses.
Other business owners in your community may also be able to suggest a lawyer.
Lawyers can help you with a variety of legal issues affecting your business.
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33. How Lawyers Can Help You
Help you choose a legal structure for your business
Create documents such as lease and purchase agreements
Develop partnership agreements
Inform you of regulations and licenses
Give advice on insurance coverage
Advice you on taxes
Help you apply for patents and trademarks
Help you plan your future (a will, retirement plans)
Defend you in a lawsuit, or file one for you
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Prepaid Legal Plans
You can pay for a lawyer on an hourly basis or use a prepaid legal plan.
People who use prepaid legal plans pay a monthly fee whether or not they use the service.
In return, they have access to legal services and consultation when they need it.
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35. Ethical Issues in Business
As the owner of your business, you will be forced to deal with what is right or wrong, you will have to make ethical decisions about the way you want to run your business.
Thinking about ethical issues in advance will help you handle conflicts when they arise.
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What is Ethics?
Ethics is the study of moral choices and values.
Ethics involves choosing between right and wrong.
Behaving ethically means behaving in an honest manner.
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Culture and Ethics
Different cultures define ethical behavior differently.
In some countries, it is considered unethical to take bribes.
In other countries, paying bribes may be an acceptable business practice.
In some countries, employers may treat employees badly.
In other countries, employers are expected to respect their employees’ rights.
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Codes of Ethics
Even within the same culture, individuals develop different standards, or codes, or ethics.
A code of ethics is the level of ethical behavior demanded by an individual, a business, or a culture.
Some individuals have very high standards of ethics and do what is right in every situation.
Other individuals don’t develop a standard of ethics at all.
They act without thinking whether their actions are right or wrong.
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Ethics and Business
Ethical questions arise in every type of business.
Large corporations, small companies, and home-based businesses all deal with ethical dilemmas at one time or another.
Business ethics is the application of the principles of right and wrong to issues that come up in the workplace.
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Set High Standards
Business and ethics used to be considered unrelated to each other.
Over the past hundred years, the view has changed dramatically.
Businesses today recognize that they must behave in an ethical manner.
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41. Myths About Business And Ethics
Some people believe that entrepreneurs need not concern themselves with ethical issues.
They believe that their only goal should be increasing profits.
They might think that acting ethically can hurt their profits.
In fact, using ethics in business can help avoid disasters.
It also can make customers and suppliers more wiling to do business with you.
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Consumer Awareness
Consumers and business owners are both sensitive to business ethics.
Because consumers are so aware of ethical issues, businesses find ways to show customers that they practice ethics in their daily operations.
Manufacturers of some shampoos and cosmetics print on their packaging that they do not test their products on animals.
Consumers who have strong opinions about rights may be more willing to purchase such products.
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43. Establish an Ethical Workplace
As the owner of your business, it will be up to you to inspire your employees to behave ethically. You will want to establish an ethical workplace for several reasons.
You want to do the right thing.
You want to serve as a role model to others.
You want to be proud of the way you conduct yourself, and you want others to be proud of you.
Ethical behavior is good for business because it gains the trust of customers.
Employees are more likely to act ethically if they see the business owner acting in an ethical manner.
Acting ethically reduces the possibility of being sued.
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44. Create a Written Code of Ethics
One way that you can communicate your ethical beliefs to the people who work for you is by creating a written code of ethics.
Such guidelines will help you and your employees make ethical decisions.
You should create a code of ethics soon as you begin your business.
Even if you are your business’s only employee, you should create a written code of ethics.
You should also establish company policies and procedures to let you and your employees know how to behave in certain situations.
To create an ethical code for your business, think about ethical dilemmas that may arise and come up with solutions for dealing with them.
Talk to other business owners to see what kinds of ethical problems they have encountered.
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45. Meet Your Social Responsibilities
Entrepreneurs have responsibilities to the people they work and deal with.
They also have responsibilities to the communities in which they are located.
They even have a responsibility to the environment.
What are these responsibilities, and how can you meet them?
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46. Social Responsibilities
As an individual, you have personal responsibilities to yourself, to your family, and to your friends.
As an entrepreneur, you have responsibilities to your customers, your suppliers, your investors, your creditors, and your community.
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47. Personal Responsibility
As an entrepreneur, you will establish a business and work with the local community.
You also may live in the community.
Your actions as a business owner will have an impact on the community and may even extend to other areas as well.
Your personal responsibility to the community is to use natural resources wisely, not to pollute the environment, and to obey all established laws.
Consumers also share these same responsibilities.
Business owners and consumers should make decisions wisely because the decisions can have an impact on the lives of others.
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48. Responsibilities to Customers
Your customers are your most important asset. You will need to treat them correctly, or they will no longer use your services or buy your product. When dealing with customers, you should:
Treat all customers with respect. No one likes to be treated badly.
Be honest. Never take unfair advantage of customers who do not know everything about the product or service they want to buy. Help your customers make good purchasing decisions.
Avoid exaggerating the merits of your products or services. Remember that customers are not happy with what they purchase will not do business with you again.
Inform customers of possible dangers of products you sell. Remember that this is also a legal requirement.
Handle all disputes fairly. Try to see both sides of an issue when there is a disagreement with a customer.
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49. Responsibilities to Suppliers
You depend on your suppliers to provide you with the goods you need to manufacture or sell your products. To make sure that you maintain good relationships with them, you will need to:
Treat all suppliers with respect. If you respect them, they will respect you.
Refuse to participate in dishonest schemes your suppliers may suggest. If a supplier asks you to pay cash in order to conceal the payment from the Internal Revenue Service, don’t do it.
Give suppliers time to fill your order. If a supplier asks you to pay cash in order to conceal the payment from the Internal Revenue Service, don’t do it.
Handle all disputes fairly. Try to see both sides of the issue and work out a solution that is fair to both you and the supplier.
Let your current supplier know the reason for your decision if you change suppliers. This is a courtesy to the supplier as well as a good business practice.
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50. Responsibilities to Creditors and Investors
Creditors and investors have shown faith in your ability to succeed.
To repay their confidence in you, you should run your business as carefully as possible.
You should also let creditors and investors know when things are not going well.
Never conceal losses from them.
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51. Responsibilities to Your Community
Business owners have a special responsibility to contribute to their communities.
They can do so in various ways, including donating money, products, and services.
They can also get involved in community issues or activities.
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52. Donate Products or Services
Some businesses donate the products or services their business sells.
Used clothing stores donate unsold clothes to charities.
Computer companies sometimes send technicians to community agencies to help the staffs learn about computers.
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Get Involved
You can contribute to your community in other ways as well.
Some entrepreneurs get involved in issues affecting their local governments, such as changes in zoning laws and the establishment of local parks.
Others get involved with charitable organizations, volunteering both their time and money.
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54. Respond to Changes in the Workplace
Whenever society changes, businesses have to respond.
In order to attract and retain good employees, you will have to become sensitive to the needs of the people who work for you.
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55. Accommodate Your Employees’ Family Needs
Many people today need to take time off from work to deal with personal issues.
An employee may need to leave work early to attend a teacher conference or take a parent to the doctor.
As an employer, you will need to establish policies that deal with these kinds of issues.
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56. Consider Flexible Work Hours
Some of your employees may prefer to work hours other than the standard hours you have set.
Some may like to get to work very early in the morning and leave in the afternoon.
Others may prefer to work four long days rather than the traditional five.
Not all businesses can permit employees to work flexible hours.
If your business can be operated with a flexible schedule, you should consider whether offering this option will benefit your employees.
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57. Respect the Environment
Damage to the environment comes from many different sources.
The burning of coal and oil for energy pollutes the air.
Release of toxic chemicals pollutes the ground, air, and water.
Disposal of billions of tons of garbage every year also creates environmental problems.
Businesses have a major impact on the environment.
As an entrepreneur, you will have an obligation to do as little harm as possible to your surroundings.
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58. Respect the Environment (continued)
To meet your environmental responsibilities, you should:
Protect the environment from pollutants. Don’t knowingly dump hazardous material on the ground or in lakes and rivers.
Conserve nonrenewable resources, such as coal and oil, by using them efficiently. Nonrenewable resources are not easily replaced once they are gone. It takes hundreds of years to regenerate a nonrenewable resource.
Reduce waste and dispose of waste responsibly. Recycle materials such as paper, plastic, aluminum, glass, and steel.
Use environmentally safe and sustainable energy sources to meet your business needs. Electricity is a good example. It can be replaced quickly and does not pollute the environment.
Sell products that cause as little damage to the environment as possible. For example, don’t sell a carwash solution that kills plants.
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59. Laws Governing the Environment
In 1970, the federal government created an agency to enforce the laws governing the environment.
The Environmental Protection Agency (EPA) enforces federal laws concerning clean air and water.
If your business handles hazardous materials, you will need to become familiar with these laws.
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References
Greene, C. (2006). Entrepreneurship Ideas In Action. Retrieved August 25, 2012, from Thomson SouthWestern.
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