Chapter 04 – Maintaining Good Government Relations and Business Ethics
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CHAPTER
Maintaining Good Government
Relations and Business Ethics
CHAPTER CONTENTS
Learning Objectives 4.2
Chapter Overview 4.2
Brief Chapter Outline 4.2
4
Chapter 04 – Maintaining Good Government Relations and Business Ethics
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LEARNING OBJECTIVES
After studying the material in this chapter, the student will be able to:
1. Understand the legal system in which small businesses operate, and explain some basic
business laws affecting them.
2. Discuss the role played by government assistance.
CHAPTER OVERVIEW
In Chapter 4, the bases of the legal system and laws are studied; The Uniform Commercial Code
and its use are explained, and this is followed by discussions of the various laws applied to business, such
as contracts, sales, and property.
Governmental aids to business, many of which have been presented earlier, are summarized next
and illustrated. Small businesses must deal with governmental regulations, agencies, and paperwork, and
BRIEF CHAPTER OUTLINE
I. UNDERSTANDING THE LEGAL ENVIRONMENT
II. SOME BASIC LAWS AFFECTING SMALL BUSINESS
A. The Uniform Commercial Code
B. Torts
C. Bankruptcy
III. GOVERNMENT HELP FOR SMALL BUSINESSES
A. Small Business Administration (SBA)
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IV. HANDLING GOVERNMENT REGULATIONS AND PAPERWORK
A. Dealing with Regulatory Agencies
B. Some Benefits of Government Regulation
V. CHOOSING AND USING A LAWYER
A. Choosing a Lawyer
B. Maintaining Relationships with Lawyers
VI. SOCIALLY AND ETHICALLY RESPONSIBLE BEHAVIOR
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CHAPTER OUTLINE AND TEACHING NOTES
CHAPTER OPENING PROFILE:
BSI: Forty-five Years and Still Going
BSI is a small subchapter S land-surveying corporation employing between 20 and 25 pro-
I. UNDERSTANDING THE LEGAL ENVIRON-
MENT (Table 4.1 Shows Selected Basic Legal
Terminology)
Learning Objective 1.
Understand the legal system in which small businesses oper-
ate, and explain some basic business laws affecting them.
A. Basic Legal Principles
1. Everyone is equal under the law.
B. All laws affecting business are based on the
federal or a state constitution.
1. Branches of government:
a. Legislative (Congress, state legisla–
ture, county/city council) makes the
2. Laws are made at multiple levels of gov-
ernment, including federal, state,
county, and municipal levels.
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CHAPTER OUTLINE AND TEACHING NOTES
3. Each level administers its own laws.
II. SOME BASIC LAWS AFFECTING SMALL
BUSINESS
A. The Uniform Commercial Code
1. The UNIFORM COMMERCIAL CODE
(UCC) is a set of uniform model statutes
to govern business and commercial
transactions in all states, consisting of
the following nine articles:
a. General Provisions.
2. The code has been adopted by all 50
states, although Louisiana still operates
partially under Napoleonic Code
B. Torts
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CHAPTER OUTLINE AND TEACHING NOTES
1. A TORT is a wrongful act by one party,
not covered by criminal law, that results
in injury to a second party’s person,
C. Bankruptcy
1. BANKRUPTCY is a formal legal condi-
tion of inability to repay debts. People or
businesses can petition the courts to be
relieved of this financial obligation.
a. Ordinary, or straight, bankruptcy oc-
2. CHAPTER 11 (of the Bankruptcy Re-
form Act of 1978) contains a provision
for reorganizing a bankrupt business,
III. GOVERNMENT HELP FOR SMALL BUSI-
NESSES
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CHAPTER OUTLINE AND TEACHING NOTES
Learning Objective 2.
Discuss the role played by government assistance.
A. Small Business Administration (SBA)
1. The SBA provides direct and guaran-
teed loans for small firms.
2. The SBA also provides help for small
firms through publications, local work-
shops, small business development
B. Small Business Development Centers
(SBDCs)
1. Small Business Development Centers
provide counseling, training, and tech-
nical assistance in small business man-
agement.
2. SBDCs are partially funded by the SBA
C. U.S. Department of Commerce offers as-
sistance through:
1. International Trade Administration (ITA)
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CHAPTER OUTLINE AND TEACHING NOTES
REAL WORLD EXAMPLE 4.1
The SBDC at the University of Georgia provides major net-
working for entrepreneurs with many state and federal agencies.
D. Other government agencies, including the
U.S. Department of Agriculture, which spon-
sors:
1. the Cooperative Extension Service
REAL WORLD EXAMPLE 4.2
When the North American Free Trade Agreement (NAFTA)
went into effect in 1994, the SBA started a loan-guarantee loan
program for areas in which job losses occurred
IV. HANDLING GOVERNMENT REGULATIONS
AND PAPERWORK
Learning Objective 3.
Describe some burdensome aspects of government regulations
and paperwork.
A. Small firms that were previously exempt
from federal regulation are now regulated in
the same way as larger competitors are.
1. Understanding and complying with gov-
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CHAPTER OUTLINE AND TEACHING NOTES
B. Dealing with Regulatory Agencies
1. In theory, a regulatory agency is more
flexible and sensitive to the needs of so-
C. Some Benefits of Government Regulation
1. Some regulations are truly cost-effec-
tive.
D. Some Problems with Government Regu-
lation:
1. The difficulty of understanding some of
REAL WORLD EXAMPLE 4.4
According to Steve Forbes, the Gettysburg Address has about
200 words, but the U.S. federal income tax code has about seven
million words.
2. The amount of paperwork involved in
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CHAPTER OUTLINE AND TEACHING NOTES
3. Another problem is the difficulty and
cost
and cost of complying with regulations.
4. Regulations tend to discourage small
E. How Owners of Small Firms Can Cope
with Government Regulations
1. Learn as much as you can about the
laws.
2. Challenge detrimental or harmful laws.
tions.
F. Dealing with Private Regulators
1. Many professional organizations also
establish standards of practice for their
members.
2. Their guidelines try to ensure profes-
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CHAPTER OUTLINE AND TEACHING NOTES
V. CHOOSING AND USING A LAWYER
Learning Objective 4.
Explain how to choose a lawyer.
A. Your attorney should be obtained at the time
you re developing your business plan. Your
lawyer has several roles:
1. Education.
B. Choosing the Lawyer (This process de-
mands comparison shopping, checking cre-
dentials, checking performance records, dis-
cussing fees candidly, as well as the wisdom
of retaining counsel.)
1. Where to look: the American Bar Asso-
ciation recommends:
a. Personal referral from someone
2. What to look for:
a. Look for appropriate experience
with your type of small business.
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CHAPTER OUTLINE AND TEACHING NOTES
b. Look for compatibility between law-
C. Maintaining Relationships with Lawyers
1. Lawyers have three basic ways of
charging for services:
a. A flat fee may be charged for a
2. Lawyers will also expect to be reim-
bursed for expenses.
VI. SOCIALLY AND ETHICALLY RESPONSIBLE
BEHAVIOR
Learning Objective 5.
Describe ethical and socially responsible behavior.
A. There is now greater emphasis on social re-
sponsibility and ethical behavior.
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CHAPTER OUTLINE AND TEACHING NOTES
2. Eighty-four percent say they choose
B. SOCIAL RESPONSIBILITY is a business’s
obligation to follow desirable courses of ac-
tion in terms of society’s values and objec-
tives.
1. CONSUMERISM is the organized effort
of independent, government, and busi-
ness groups to protect consumers from
2. Enlightened EMPLOYEE RELATIONS
is showing interest in and concern for
employees’ rights.
a. This applies to meaningful employ-
ment, training, development, promo-
Chapter 04 – Maintaining Good Government Relations and Business Ethics
CHAPTER OUTLINE AND TEACHING NOTES
b. Hiring must be done without regard
to race, sex, religion, color, creed,
age, or disabilities.
c. Other employee-related concerns
d. Office romance is another are
where your policy should be clear
and known by all.
4. ENVIRONMENTAL PROTECTION tries
to maintain a healthy balance between
people and their environment.
a. POLLUTION CONTROL is trying
to prevent the contamination or de-
struction of the natural environment.
(1) It is one of the most difficult
problems facing all aspects of