.

1. Ethical and Legal Issues in
the establishment and
operations of a business
By: Miss Vinesha Ramsaroop.
Form 4: P.O.B

2. Learning Objectives
 Explain the ethical and legal issues in the establishment and operations of a
business.
 Explain the principles that must be adopted in the establishment and
operation of a business.

3. Ethical and legal issues
 Ethical issues occur when a given decision or activity creates a conflict with a
society’s moral principles. Both individuals and businesses can be involved in these
conflicts, since any of their activities might be put to question from an ethical
standpoint.
 There are regulations that a company must follow to be recognized as a legal entity
e.g.it must be registered with the registrar and must be formed using the
Companies Act.
 Legal issue or issue of law is a legal question which is the foundation of a case. It
requires a court’s decision. Therefore, the outcome of which depends on the court's
interpretation of the law.

4. Business Ethics and Code of Conduct
 Business ethics is concerned with businesses doing the “right thing”, and
behaving in a fair and honest way.
 Ethical businesses would not make false claims or try to mislead consumers.
 Being “unethical” is not necessarily illegal, but it is “not the right thing to
do.”
 Laws are in place for companies to follow and obey.
 A code of ethics/ conduct makes it clear what “doing the right thing “ means.
All businesses should have a code of ethics to ensure order in the workplace.

5. Examples of Ethical Issues

6. Research
 1. In your own words define “ business ethics.”
 2. Identify 5 ethical issues involved in setting up and running a business of
your choice.

7. Consequences of Unethical and illegal
practices
 If a business acts illegally or unethically, there will be serious consequences,
both for the business and for society.
 The negative effects of unethical and illegal practices on the business, for
example:
1. misleading advertisements
2. withholding of tax
3. unethical disposal of waste
4. money laundering

8. 1. Misleading Advertising
 Misleading advertising is likely to breach laws regarding the provision of
information about goods.
 False advertising is unfair and wrong because it is fraudulent practice on the
public. Advertising can raise many moral issues. Countries have some of
legislation such as Sale of Goods Act that help to protect the consumer from
exploitation. The basic understanding is that advertisement should be legal,
honest and truthful.
 Advertisement should follow the following practice:
 observe the laws as it relates to advertising.
 do not make claims that cannot be supported.
 take care not to offend individuals or groups.
 act responsibly.
 do not exploit the vulnerable.

9. 2. Withholding of tax
 Withholding tax is in effect cheating the government of revenue and when
you cheat the government of revenue you cheat the entire population.
 Withholding tax is not only associated with money laundering but many
businesses look for ways of keeping their tax payment to the minimum.

10. 3. Unethical Disposal of Waste
 Most commercial and industrial activities result in waste materials.
 Dumping or illegally disposing waste is not acceptable as it can cause harm to
human beings and animals.
 This can lead to pollution which can have a negative impact on the environment.

11. 4. Money laundering
 Money laundering is the process of taking the proceeds from criminal
activities and making them look as if they have been gained legitimately.
 This involves setting up bank accounts and then placing the proceeds into
these accounts which appear to have been acquired legitimately.

12. CONSEQUENCES OF UNETHICAL OR ILLEGAL
PRACTICES
 If you were caught in behaving in an illegal or unethical manner, it is likely that
not only would you be punished but also that the misdeed will be associated with
your name for a very long time.
 Thus, in most countries’ governments establish regulations and procedures to
show how businesses should be run, to guide business practices and to protect
competitors and the wider public. These are often backed by legislations.
 Failure to follow government guidance often results in large fines and penalties.
Thus, constantly breaking the laws can lead to costly legal battles and even
resulting in the closure of the business.

13. NEGATIVE EFFECTS OF UNETHICAL AND
ILLEGAL PRACTICES
 If it becomes public knowledge that a business has acted illegally or ethically
the business loses credibility.
 While some companies can and do survive it is costly. The recovery cost
usually includes reimaging and advertising campaign etc. and many businesses
lose customer base during the time taken to restore the image and customers
confidence.

14. Explain the principles that
must be adopted in the
establishment and
operation of a business.

15. Key Terms
 Business principles are the foundational guidelines that are important for the
running of a business.
 Corporate Social Responsibility (CSR) is the duty of businesses to operate in a
responsible way when operating a business.
 A Code of ethics means “ doing the right thing.” All businesses should have a
code of ethics to assists stakeholders of the business to behavior ethical in all
business affairs.

16. Policies on Environmental Issues
 Some environmental issues include: air pollution, global warming, water
pollution, natural resource depletion and deforestation.
 An environmental policy outlines how a company deals with environmental
issues.
 Most companies have policies on the environmental issues such as eliminating
waste, recycling materials (wherever it is possible to) and minimizing energy
use, etc.

17. Handling of Personal Information
 Confidentiality means the state of keeping a secret or not disclosing
information without permission.
 Employees, customers and suppliers have personal information that should
not be revealed to others.
 This includes financial information such as their bank account details, or
details about how much money they earn.
 Business policies should be put in place to protect personal information and
permission should be granted before exposing customers’ information.