All You Need To Know About Legal And Ethical Issues In Business (2023)

All You Need To Know About Legal And Ethical Issues In Business

  • By : Staff Writer
  • Business Development
  • 0


Owning a business comes with a lot of benefits and also some challenges. The increasing threat of ethical issues is one of them, as it can cause significant damage to business reputation and finances.It is therefore essential to address these ethical issues.

Again, establishments face a host of legal issues, which is quite dependent on the industry one operates. Startups that take legal issues into account, experience quick progress and get long-term benefits. There are, however, some litigious factors that small business owners have to note when it comes to legal issues.

Hence, this article explores some common legal and ethical issues in business that every small business owner should have knowledge of.

Table of Contents

  • What is Ethics in Business?
  • Reasons for Conducting Ethical Businesses
  • Legal and Ethical Issues to Consider When Starting Your Business
  • Partnership Contracts.
  • Corporate Social Responsibility
  • Intellectual Property
  • Advertising
  • Licensing
  • Anti-Spam Law
  • Hiring Employees
  • Business Succession Planning
  • Financial Ethics
  • Instituting Clear System
  • Non-disclosure Agreements
  • Health Care
  • Zoning
  • Employee Termination
  • Age
  • Metatags
  • Litigiousness
  • Nepotism
  • Obscenity
  • User Agreement
  • Fraud and Misuse
  • Linking to Other Business Sites
  • How to Avoid Legal and Ethical Issues in a Business Setup
  • Know the labor laws
  • Familiarize yourself with regulations
  • Learn about intellectual property
  • Hire the right attorney
  • Conclusion

What is Ethics in Business?

Business ethics is a collection of appropriate policies and practices concerning controversial issues within a business environment. Business ethics are practices that examine moral problems that arise in a business.

These are behaviors that all businesses generally stick to. Ideally, it applies to all facets of business conduct. Hence, relevant to the conduct of individuals and organizations as a whole.

However, employees will resist if an organization’s rules and codes do not fit in well with their core values.

Reasons for Conducting Ethical Businesses

  1. Consumers will feel more comfortable doing business with institutions that are regarded as acting ethically. Establishments also get more leads when they act responsibly towards the environment and the community, that is, corporate social responsibility.
  2. Potential agents are drawn to companies that are recognized to be fair in the treatment of their workers. This is vital to many potential employees than wages and salaries. Employees with related values to an institution are also likely to match that organizational culture.
  3. Other companies will want to enter into a mutually beneficial relationship with ethical organizations. However, companies prefer not to deal with companies with a bad reputation for ethical conduct. This is important to procurement and managing the supply chain.
  4. Businesses with poor ethical criteria will find it difficult to gain financial assistance.
  5. Behaving ethically will enhance your competitiveness and strengthen your corporate reliability.
  6. However, unethical practice can damage trust. Transparency and openness are key to sustaining organizational integrity and authenticity.

Ethical and Legal Issues to Consider When Starting Your Business

Ethical issues Associated with Partnership Contracts.

It is important to outline proper contracts if an establishment has more than one owner. Draft it in virtue of the relevant legislation and ensure it also include an exit strategy.

Shareholder contracts, therefore, become important during succession, planning, decision making, and termination of a contract.

Nonetheless, choosing the wrong type of contract has severe consequences.

The business entities available to choose from are as follows:

  1. Sole proprietorship
  2. Partnership
  3. Limited Liability Company
  4. C-Corp
  5. S-Corp

Each type comes with a tax structure. Each type has a dissimilar way of legally regarding the owner and business. It is therefore important to hire a lawyer who can help you select a business structure that is most appropriate for your business.

Ethical Issues Associated with Corporate Social Responsibility

This comprises an organization’s obligation to the society. Big companies and other businesses that have more direct impact on the environment are targeted. Hence, every business is responsible for the air quality, water cleanliness, the conservation of other natural resources, among many others.

Therefore, businesses operating within the confines of an office building are meant to be environmentally responsible.


Legal Issues Associated with Intellectual Property

Startups bring good ideas, products, and marketing plans into the market. However, more often than not, they fail to patent, trademark, or copyright them. This allows other companies to swoop in and claim it. Since these unique ideas and products often make startups attractive, it is vital to protect intellectual property. Determine what should be protected by copyright, patent, or trademark with your lawyer.

Ethical Issues Associated with Advertising

There are advertising regulations against business owners. These regulations can be limited to a particular industry. However, entrepreneurs are the determinant of regulations periodically.

You have to review all advertisements even if you have engaged an advertising agent or company. Therefore, every business owner should get legal advice on any industry-specific regulations on advertisements.

Ethical Issues Associated with Licensing

Every business should have a genuine license in order to operate. Differentgovernment preconditionsthus exist for each business type. However, these conditions vary with the size, type, and location of the establishment.

The goods or services that your business supplies, can be affected by these licenses. Failure to obtain a license can cost a small business large fines or even lead to a forced shut down. It is, however, a good idea to get a lawyer who is specialized in small businesses.

The lawyer will navigate through the paperwork and help such business get the proper licenses.

Ethical Issues Associated with Online Terms & Conditions

Once your business decides to go online, you have to understand the laws that come with it. Protect your business from online defamation suits and third-party liability. Also, you have to explain your online privacy policy to your customers.

It is important to present your online terms and conditions to the general public.

Ethical Issues Associated with Anti-Spam Law

Entrepreneurs need consent in other to send commercial electronic messages. Electronic is not limited to only emails. Customers must be obliged to unsubscribe even if they are messaged without their consent.

Thus, the unsubscribe options should be enabled for the customers. There should also be a time limit to remove customers from the message list.

Moreover, violating this law can lead to severe penalties.

Ethical Issues Associated with Hiring Employees

As the business expands, it becomes necessary to hire employees. Entrepreneurs make the mistake of hiring employees with an unofficial verbal agreement. This can cause great setbacks in the future.

In this vein, problems may arise in the future. Thus, employing without documents that outline the rights and rules of the employee may result in a court case.

(Video) What are the ethical issues facing business today?

Make sure to include information about when the employee was hired. Also document the following information;

  1. Responsibilities
  2. Rights
  3. Roles
  4. Potential reasons for termination
  5. Benefits
  6. Salary/Payment
  7. The date of contract

Ethical Issues Associated with Business Succession Planning

Many people think that succession planning is not important when starting a business. However, it is an important aspect of a business. Sole proprietors need to acknowledge who will handle their businesses in their absence. There should be someone to replace you if you are unable to work. These are decisions that should be addressed in the early stage of a business. For incorporated businesses, there are restrictions under the articles or by-laws. Thus, it is reasonable to go over all corporate records before devising a succession plan.

Ethical Issues Associated with Financial Ethics

Businesses must be transparent in reporting and deploying financial resources. This will attract investors, and other stakeholders can easily trace the movement of funds in the organization.

Ethical Issues Associated with Instituting Clear System

This is to ensure that customers do not use financial resources unethically to gain unfair advantages in tendering for contracts. HR should, therefore, keep clear policies on the behavior of workers in areas that are susceptible to unethical practices.

Regardless, take caution to ensure that consultant services in the financial department are not provided by the same organizations that audit the financial accounts unless there is a clear corporate level difference connecting the consultants and auditors. Most contracts will address this in a section on “conflict of interest.”

Now, let’s talk about the legal issues small business owners might face in business;

Legal Issues Associated with Non-disclosure Agreements

When entering into contracts with suppliers, you should consider confidentiality and non-disclosure agreements. These firms are going to have access to business information that you may want to keep private. Therefore, you should get them to sign these agreements to be on the safer side. Hence, the more confidential information your business plan contains, the more important these agreements will be.

Legal Issues Associated with Health Care

All You Need To Know About Legal And Ethical Issues In Business (1)

Law requires that companies with 50 or more employees provide health care insurance for their employees. However, some businesses may decide not to bring on additional staff if they are close to the 50-employee mark, so, the law wouldn’t apply. Smart entrepreneurs will take insurance policies to cover their employees.

This assures employees to work comfortably.

Legal Issues Associated with Employee Termination

After hiring someone, you realize that you will be losing money by keeping them around. This is because they are not as productive as you thought when hiring them. It could also be that they just do not fit in well with the other employees.

This will, however, affect productivity and morale for the team. Take the right precautions before terminating these employees. This will reduce your chances of legal consequences.

You can, therefore, consult your lawyer if you have no idea how to go by this.

Legal Issues Associated with Age

Parents must permit a website to disclose information to children under 13. This is from the Federal Trade Commission regulations via the Children’s Online Privacy Protection Act (COPPA). Also, if your information is adult material in nature, remember that children under 18 should not be permitted.

(Video) Business Ethics | The Impact of Ethics on Business

Finally, children under 18 are not allowed to agree to contracts such as website user agreement and purchase contracts.

Legal Issues Associated with Meta Tags

The use of another company’s trademarks as meta tags on competitors’ sites is prohibited by law. Company A cannot use company B’s trademark keyword in the meta-tagging of its site. This will put company A higher in organic search results in place of company B. This can, however, cause your company great financial loss.

Legal Issues Associated with Litigiousness

Entrepreneurs can easily control this issue. Carefully analyze a situation before filing a lawsuit. Paying legal fees from lawsuits can easily add up.

Therefore, find a way to settle a dispute outside of court. Let your lawyer handle issues of this sort.

Legal Issues Associated with Nepotism

This is a form of favoritism for a set of individuals over others. Thus, hiring someone based on your relationship with them and not on their ability to do the job can cause a setback for the company.

Even if they qualify for the position, it can breed hatred among other employees. Therefore, you have to be extremely careful about employing someone from your personal life. It will also be difficult to lead this kind of person. Ultimately, taking legal actions against them will be an uneasy decision to make.

Legal Issues Associated with Obscenity

This has to do with online content. Materials that are not permitted on the internet are considered “obscene” by federal law. Therefore, kids are, especially, not permitted to view such materials. Obscene materials are determined based on the local standards of the viewing community.

Reviewing your website content with your lawyer is a good way of preventing issues of this kind.

Legal Issues Associated with the User Agreement

The most important part of a website for your small business is the user agreement or ‘terms and conditions.’ This will requires every user to agree to be bound by a contract controlling their use of the site. However, the user must agree to the terms and must only be allowed to proceed to use the site after clicking the ‘I agree’ bottom.

Legal Issues Associated with Fraud and Misuse

All You Need To Know About Legal And Ethical Issues In Business (2)

A unique environment exists in the computer world where unauthorized activities can occur. Therefore, misdeeds in this classification are understood in many forms.

  1. Theft
  2. Fraud
  3. Embezzlement
  4. Extortion and so on

Hence, fraud-related issues include the introduction of false records into a computer system. Another is the theft of money using electronic means. We also have theft of services, theft of financial instruments, and theft of valuable data.

Legal Issues Associated with Linking to Other Business Sites

All You Need To Know About Legal And Ethical Issues In Business (3)

Consider these two factors when linking to other business sites.

  1. The word, image, or video you want to use for the link. Also, check if your trademark does not coincide with that of another company. Remember, you would need permission to use another company’s trademark on your site.
  2. Also, you have to link to the homepage of a website. This can cause losses in advertising revenue if users are not directed through the homepage.

How to Avoid Legal and Ethical Issues in a Business Setup

With all these issues raised above, here are some things you will have to keep in mind to avoid legal and ethical problems in your establishment;

(Video) What is Business Ethics?

Know the labor laws

Understanding employment lawsis essential in a business setup. This is because labor disputes can cost you huge losses. More so, your business reputation can be tainted.

No potential employee wants to work with a company that doesn’t take care of its employees. Therefore, you should know the right actions to take when it comes to handling labor issues. You have to also learn about the legal conditions involved in firing an employee.

Familiarize yourself with regulations

There are lot of laws and ethical behaviors that businesses should abide by.

Thus, you should know more about regulatory policies on the federal and state levels. Educating yourself about these laws will guide you in executing contracts. Therefore, learn more aboutthe legal structuresand corporate governance in your region.

Learn about intellectual property

This is an aspect of business law that entrepreneurs shouldn’t take for granted. Intellectual property infringement can cost your business huge sums of money in damages. This is why market research is important before starting a business. This will help you to avoid copyright issues.

Hire the right attorney

All You Need To Know About Legal And Ethical Issues In Business (4)

To deal with complex legal issues, you should hire a lawyer with experience. They will provide you with ample advice and ensure that you are operating legitimately. You can also ask for recommendations from your business partners. Local bar associations are also there to help.


Making sure that you are operating within the boundaries of the law is one thing you need to do when starting your business.It will seem like a big inconvenience, yet you have to comply if you want to remain profitable and existent.

However, running into legal problems will cost your company financially. Your licenses can also be withdrawn and your business forced to shut down. More so, managers who do not work within the law might even face jail time.

In sum, every business must understand the law to protect their reputation and avoid actions that would result in financial loss. Law and ethics in business, however, is a highly complex field. Thus, the best thing to do is to apply the above tips, while also ensuring that you are not ignoring crucial details in terms of compliance.

Tags :

Accounting PracticesBusiness Ethics in the workplaceCompliance and Governance IssuesDecision-Making IssuesDissatisfied CustomersEnvironmental ResponsibilityHealth and Safetylegal or ethical issues in business


1. E-Commerce | Ethical Issues of e-Commerce | Legal Issues of E-Commerce
(Dayal Group Of Institutions)
2. Legal ad ethical issues in Business communcation
(NDIM BBA Affiliated to GGSIPU)
3. Ethical Issues in the Business
(Ariel Serrano)
4. Ethical Issues in Marketing
(Commerce Studies)
5. Ethical and legal issues in communication by Dr. Neha Raghav
(NDIM BBA Affiliated to GGSIPU)
6. What is Business Communication and Ethical Context? Ethical Issues in Business Communication?
(IBEX Education)
Top Articles
Latest Posts
Article information

Author: Wyatt Volkman LLD

Last Updated: 06/19/2023

Views: 6036

Rating: 4.6 / 5 (46 voted)

Reviews: 93% of readers found this page helpful

Author information

Name: Wyatt Volkman LLD

Birthday: 1992-02-16

Address: Suite 851 78549 Lubowitz Well, Wardside, TX 98080-8615

Phone: +67618977178100

Job: Manufacturing Director

Hobby: Running, Mountaineering, Inline skating, Writing, Baton twirling, Computer programming, Stone skipping

Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.