Small Business Management:
A Planning Approach
Joel Corman
Suffolk University, Emeritus
Robert Lussier
Springfield College
Lori Pennel
Bunker Hill Community College
Copyright Atomic Dog Publishing, 2005
PART 2
Business Planning
CHAPTER 4
The Legal Environment and Social
Responsibility
Copyright Atomic Dog Publishing, 2005
4-1 Introduction
• Small business owner is not expected to be a
lawyer.
• Sufficient knowledge of the law to avoid poor
business decisions is required.
• Lawsuit against your firm can result in damages,
resulting in losing business.
• Familiarity with the legal systems safeguard your
firm and provide opportunities for your business.
• Seek legal counsel from an attorney when making
business decisions and possibly to defend yourself
against a lawsuit.
Copyright Atomic Dog Publishing, 2005
4-2 Basics of Business Law
• The basics of business law involves:

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Contracts
The uniform commercial code
Agency
Protecting intangible assets
Copyright Atomic Dog Publishing, 2005
4-2a Contracts
• A binding agreement creating an obligation among the
parties involved.
• Contract laws govern the rights and obligations of the parties
to the contract.
• The small business enters into contracts with:
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Employees
Customers
Suppliers
• The five elements of a contract are:
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Agreement
Consideration
Legality
Capacity
Form
Copyright Atomic Dog Publishing, 2005
4-2a Contracts (contd.)
• Breach of contract occurs when one party fails to
perform as agreed.
• Courts allow monetary damages to restore the
injured party to the position he/she would have
been in had the contract been performed.
• Courts also award consequential damages due to
breach of contract, awarding lost profits too.
Copyright Atomic Dog Publishing, 2005
4-2b The Uniform Commercial Code
• Developed in the 1940’s
• Consists of 10 articles

Louisiana has adopted only articles 1, 3, 4, and 5
• The UCC imposes rules in the sales of goods that
may vary from basic contract law.
• Sales contract elements include:

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Specified price
Delivery date
Place of delivery
Quantity
Copyright Atomic Dog Publishing, 2005
4-2b The Uniform Commercial
Code (contd.)
• Contract exists even if one or more terms of the
contract required for agreement are omitted

Court can reasonably supply the missing terms.
• Magnuson-Moss act of 1975: warranties offered
must be clearly written.
• Warranty explains what the business promises
about its product and is based on:
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Competitive warranties
Costs
Service capabilities
Customer perceptions
Legal implications
Copyright Atomic Dog Publishing, 2005
4-2b The Uniform Commercial
Code (contd.)
The uniform commercial code articles
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4-2c Agency
• Agent represents the principal in dealing with a third party.
• Real estate agents and stockbrokers represent buyers and
sellers as agents.
• The principal is liable to a third party for the performance of
the contract made by agents within the scope of agent
authority.
• Principal is also liable for fraudulent, negligent, and other
wrongful acts executed within the scope of the agency
relationship.
• Exercise care in selecting agents and clearly stipulate their
authority and responsibility.
Copyright Atomic Dog Publishing, 2005
4-2d Protecting Intangible Assets
• Small business can protect through:

Trade-marks
-

Patents
-

A word, figure, or symbol used to distinguish a product.
Exclusive right to make, use, sell an invention
Copyrights
-
Rights to exclusively reproduce, publish, and sell creative
work
Given for literature, drama, music, artistic work
Copyright Atomic Dog Publishing, 2005
4-3 Government Regulation
• National federation of independent business
survey revealed two major problems facing
business:


Cost of health insurance
Federal taxes on business income
• Other most important factors considered are:



Government regulations
Workers compensation cost
Cash flow
• At the federal level more than 90% regulator
agencies promulgate hundreds of new rules
each year
Copyright Atomic Dog Publishing, 2005
4-3 Government Regulation (contd.)
• Free Competition

Antitrust laws prevent a business person from restraining
trade by monopolizing sales and setting prices or
conspiring with others to do so.
• Consumer Protection

The federal trade Commission protects consumers from
unfair business and regulates:
-
Labeling
Safety
Packaging
Advertising
Truth-in-lending
Fair credit reporting
Equal credit opportunity
Copyright Atomic Dog Publishing, 2005
4-3 Government Regulation (contd.)
• Employment practices:


Laws ensuring business cannot discriminate during
employment selection and promotional advancement.
Employers must pay workers compensation and F.I.C.A
taxes.
• Safety and health practices

OSHA (Occupational Safety and Health Administration)
requires business to report:
- Accidents
- Injuries
- Illness
Copyright Atomic Dog Publishing, 2005
4-3 Government Regulation (contd.)
• Public Welfare

It’s a term used to refer public’s or society’s need to be
protected from indirect transactions
• State governments establish licensing
procedures for:
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Physicians
Barbers
Pharmacists
Accountants
Lawyers
Real estate salespersons
Copyright Atomic Dog Publishing, 2005
4-3a Small Business Influence
on Government Regulations
• Major organizations that a small business can join
to help protect interests:
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National federation of independent business (NFIB)
National small business united (NSBU)
U.S chamber of commerce
Trade and professional associations
Copyright Atomic Dog Publishing, 2005
4-4 Selecting a Lawyer
• A good lawyer can help small business owner’s
keep away from breaking laws.
• Anticipate legal problems and consult an attorney
before taking action.
• There are companies that allow you to purchase a
packaged legal plan like:
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

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Unlimited telephone consultation
Review of contracts
Other business documents
Discounts on other legal services
Copyright Atomic Dog Publishing, 2005
4-5 Social Responsibility
• The conscious effort to operate in a manner that
creates a win-win situation with all stake holders
• Stake holders are people who are affected by the
firm’s actions:




Employee’s
Customers
Suppliers
Stockholders
Copyright Atomic Dog Publishing, 2005
4-6 Business Ethics
• Closely related to social responsibility
• Morals and ethics
• Ethical behavior
• Ethics are the moral standard of right and wrong
behavior.
Copyright Atomic Dog Publishing, 2005
4-6a Ethical versus Unethical
Behavior
• Right behavior is considered ethical behavior.
• Ethical behavior includes words and actions that benefits the
individual or the firm and its stakeholders.
• Unethical behavior includes words and actions that benefits
the individual or firm but hurts stakeholders.
• A firm’s philosophy on ethics has an impact on its profitability.
• Ethics create an element of:
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

Trust
Familiarity
Predictability
Copyright Atomic Dog Publishing, 2005
4-6b Ethics by Example
• The owner/manager can develop an ethics
philosophy to convey to employees.
• When hiring employees make ethics one of the
qualities your looking for.
• Whistleblowing occurs when employees expose
what they consider to be unethical behavior.
• Making communication part of the job helps in
reducing theft.
• Better business bureau

An organization that is dedicated to promoting ethical
business practices within the community
Copyright Atomic Dog Publishing, 2005
4-6c The Credo and Code of Ethics
• Credo defines and prioritizes company values and
its ethical responsibilities to its stakeholders.
• Code of ethics is a written statement of the ethical
standards of behavior a company expects from its
employees.
• Small businesses should consider making the
code of ethics part of an employee manual given
to every new-hire.
• Developing a code of ethics ignored or unenforced
by managers is a waste of time.
Copyright Atomic Dog Publishing, 2005
4-6d A Stakeholder’s Guide
Ethical Decisions
to
• When making decisions try to create a win-win
situation for all stake holders.
• Depending upon the size of small business, your
stake holders will be direct subordinates reporting
to you and their subordinates.
• Identify all the relevant stake holders.
• Treat others as you want them to treat you.
Copyright Atomic Dog Publishing, 2005
4-6d A Stakeholder’s Guide
to Ethical Decisions (contd.)
A stakeholder’s guide to ethical decisions
Copyright Atomic Dog Publishing, 2005
4-7 How the Law and Social
and Ethical Responsibility Affect
Business Planning and Implementation
• Elect to start or manage a small business.
• Meet the complex regulations of federal, state, and local
government.
• Social responsibilities and ethics are integral parts of all
business functions.
• Develop and implement business plans to meet government
regulations.
• Create win-win situations with stakeholders to ensure social
and ethical business practices.
Copyright Atomic Dog Publishing, 2005