TLDR; Ethics and Law in Small Business: Understanding the Distinction and Legal but Highly Unethical Practices. Examples of ethical dilemmas faced by small businesses and entrepreneurs, such as price gouging, unfair labor practices, and misleading advertising. Establishing a code of ethics can help guide decision-making and create a responsible enterprise.

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Legality v. Ethics.

As small businesses and entrepreneurs navigate the complex world of laws and regulations, they must also consider the role ethics play in their decision-making process. This article delves into the differences between ethics and law, providing examples of legal but highly unethical practices within the realm of small businesses and entrepreneurship.

“With the increasing availability of technology and the speed at which we adapt to new opportunities, the lines between ethics and law are becoming increasingly blurred. Communication is easier than ever, and it’s essential to keep a watchful eye on ethical behavior.”

Ethics VS Law: Understanding the Distinction

Ethics and law are distinct concepts. Ethics refers to moral principles that guide behavior, while law represents rules and regulations enacted by governments to maintain order and regulate society. Although both aim to establish standards for behavior, they do not always align. Legal actions can be unethical, and ethical actions can be illegal. It is essential for small business owners and entrepreneurs to recognize this distinction and act responsibly.

Price Gouging during Disasters

Price gouging, or the practice of raising prices to exorbitant levels during emergencies or disasters, is legal in some jurisdictions but widely considered unethical. In 2017, Hurricane Harvey hit the United States, leading to widespread price gouging. Some small businesses drastically increased prices for essential goods, taking advantage of the disaster-stricken population. Although legal in specific states, the practice is unethical as it exploits vulnerable individuals.

Source: CNBC, “Price gouging runs rampant in the wake of Hurricane Harvey,” (

Pandemic Price Gouging: Exploiting Crisis for Profit

During the COVID-19 pandemic, price gouging emerged as a significant ethical concern in the world of small businesses and entrepreneurship. As the demand for essential goods like hand sanitizers, face masks, and disinfectants skyrocketed, some business owners exploited the situation by dramatically raising prices.

Although legal in certain jurisdictions, such actions were widely criticized as unethical, taking advantage of people’s fears and vulnerabilities during an unprecedented global crisis.

The pandemic’s price gouging not only harmed consumers but also strained supply chains, contributing to shortages of critical goods. Public backlash and negative media coverage of these unethical practices prompted some governments to introduce stricter regulations and penalties to curb price gouging. It served as a stark reminder that small businesses and entrepreneurs must balance their financial objectives with their ethical responsibilities, particularly during times of crisis.

Source: The Guardian, “Price-gouging in the US: How the pandemic led to a rise in profiteering,” (

Unfair Labor Practices

Some small business owners may engage in unfair labor practices, such as paying workers below the minimum wage, overworking employees without overtime pay, or hiring undocumented workers. These practices may be legal in certain contexts but are considered unethical, as they exploit workers and violate their rights.

Source: Forbes, “10 Unethical Labor Practices Your Business Needs To Avoid,” (

Misleading Advertising

Businesses may employ misleading advertising practices to promote their products or services, making false or exaggerated claims. Although these practices may be legal under specific circumstances, they deceive consumers and undermine trust.

Source: Federal Trade Commission, “Truth in Advertising,” (

Navigating the Ethical Landscape

To maintain an ethical business, entrepreneurs must consider both legal and moral implications of their actions. Several frameworks can help guide ethical decision-making, such as the stakeholder theory, which focuses on balancing the interests of all stakeholders, including employees, customers, and suppliers.

Source: Investopedia, “Stakeholder Theory,” (

Establishing a Code of Ethics

Developing a code of ethics for your small business or entrepreneurial venture is essential to establish a foundation for ethical decision-making. A well-defined code should cover aspects such as honesty, integrity, fairness, and responsibility, providing clear guidance for employees and stakeholders.

Here’s a quick guide on how you can get started

Establishing a corporate code of ethics is an essential step for any business that wants to promote ethical behavior among its employees and stakeholders. Here are some steps you can follow to create a code of ethics for your organization:

  1. Identify your organization’s values: Start by identifying the core values that your organization wants to uphold. These values should reflect your organization’s mission and vision and should be the foundation of your code of ethics.
  2. Assess risks and challenges: Identify the potential risks and challenges that your organization may face in achieving ethical behavior. This could include conflicts of interest, privacy concerns, environmental concerns, or other issues that may arise in your industry.
  3. Develop policies and procedures: Develop policies and procedures that will guide ethical behavior within your organization. This could include guidelines for reporting unethical behavior, procedures for conflicts of interest, privacy policies, and environmental policies, among others.
  4. Communicate the code of ethics: Make sure that the code of ethics is clearly communicated to all employees and stakeholders. This could include incorporating the code into employee training programs, posting it on your organization’s website, and providing copies to all employees and stakeholders.
  5. Monitor and update the code of ethics: Regularly review the code of ethics to ensure that it is still relevant and effective in guiding ethical behavior. Monitor compliance with the code, and update it as needed to reflect changes in your organization or industry.

By following these steps, you can create a corporate code of ethics that guides ethical behaviour within your organization, promotes a culture of integrity, and shows clients what you’re really all about.


In conclusion, the realm of small business and entrepreneurship is not immune to ethical dilemmas. Legal actions can be unethical, and entrepreneurs must be vigilant in identifying and addressing these situations. By understanding the difference between ethics and law, developing a code of ethics, and employing ethical decision-making frameworks, small business owners and entrepreneurs can create a responsible and successful enterprise

The information provided in this article is for general informational purposes only and does not constitute professional advice. The author and publisher shall not be liable for any loss or damage arising from the use of this information.

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