by Bruce E. May,
D.B.A., J.D.
Small businesses are increasingly faced with
numerous legal issues and questions in their everyday
business operations. In order to successfully resolve
these issues and questions, small business owners
must either become knowledgeable as to the law, seek
an attorney, or do both. The question arises as to
what legal areas and topics must small business
owners know? A statewide survey of South Dakota
attorneys and small business owners was performed to
research the above question.1
Methodology
The research study was designed to collect data
from practicing attorneys and small business owners
located in South Dakota. Survey questionnaires asked
respondents to rate 32 general areas and 48 specific
legal topics as to how extensively each should be
covered in a university course designed for students
interested in starting small businesses. The ratings
of extensiveness were on a five point scale from
"very extensively" (five points),
"extensively" (four points),
"moderately" (three points),
"minimally" (two points), and
"none" (one point). Respondents were given
the opportunity to write in any area or topic they
believed was important but not listed.
The sample for the attorney survey consisted of
500 attorneys who were practicing law within the
state of South Dakota. The names of the attorneys
were randomly selected from a 1993 active membership
list of the South Dakota Bar Association that had
been sorted in numerical zip code order. The list
contained 1,393 names. The sample represented
attorneys throughout the state of South Dakota. The
number of usable questionnaires returned was 110,
representing an overall response rate of 22%.
The sample for the small business survey consisted
of 1500 South Dakota businesses with nine or less
employees. The names of the businesses were randomly
selected from a 1993 compilation of South Dakota
businesses. The list contained approximately 7,500
businesses with less than nine employees. The sample
represented small businesses throughout the state of
South Dakota. The number of usable responses was 129,
representing an overall response rate of 9%.
Results
Areas of Law
Table 1 represents the attorney
and small business owner responses as to how
extensively 32 general areas of law should be covered
in a university course designed for students who are
interested in starting their own business. The mean
and the specific ranking is given for each area of
law and for each group of respondents.
Mean levels. The range of mean
rankings for the attorney respondents was 4.2
("extensively") to 1.64 (slightly below
"minimally") with an average mean of 2.84.
The range of mean rankings for the business
respondents was 4.06 ("extensively") to
2.25 (slightly above "minimally") with an
average mean of 3.13. The attorney respondents rated
two areas, contract law and business organizations,
as requiring "extensive" to "very
extensive" coverage. The business respondents
rated employment law and agency as the only two areas
requiring "extensive" to "very
extensive" coverage.
The attorney respondents rated 12 areas of law as
requiring "moderate" to
"extensive" coverage; 12 areas as requiring
"minimal" to "moderate" coverage;
and 6 areas below the "minimal" coverage
level. The business respondents rated 15 areas of law
as requiring "moderate" to
"extensive" coverage; 15 areas as requiring
"minimal" to "moderate" coverage;
and no areas below the "minimal" coverage
level.
Ranking level comparisons. Three
areas of law were ranked significantly differently
between the groups as measured by a spread of ten or
more ranking points. These areas were contract law,
commercial paper, and personal injury law. A
comparison of means between the three major
exceptions indicates a mean point difference between
the groups as follows: contract law (.72), commercial
paper (.86), personal injury law (1.17).
Highest ranked areas. Table 2 represents the ten areas
of law ranked the highest by each group. The business
and attorney respondents were in agreement as to the
importance of seven of the ten areas of law. The
three areas of law ranked by the business respondents
in the top ten but not ranked by the attorneys in the
top ten were unemployment compensation, product
liability, and personal injury. The three areas of
law ranked by the attorney respondents in the top ten
but not named by the business respondents in the top
ten were employment, commercial sales, and commercial
paper. One area, consumer credit laws, was ranked as
eighth by both groups.
Lowest ranked areas. Table 2
also represents the ten lowest ranked areas of law.
The business and attorney respondents were in
agreement as to the importance (or relative
unimportance) of all ten areas.
Similarity of responses. The
business respondents tended to rank the areas of law
higher than the attorney respondents as indicated by
an average mean of 3.13 as opposed to the attorney
average mean of 2.84. However, there was significant
over-all similarity in the pattern of responses
between the attorneys and small business owners as to
the relative importance of each area of law as is
seen in Figure 1.
Topics of Law
Table 3 represents the attorney
and small business owner responses as to how
extensively 48 specific topics of law should be
covered in a university course designed for students
who are interested in starting their own business.
Both mean and the specific ranking is given for each
topic of law and for each group of respondents.
Mean levels. The range of mean
rankings for the attorney respondents was 4.01
("extensively") to 1.82 (slightly below
"minimally") with an average mean of 3.23.
The range of mean rankings for the business
respondents was 4.4 (midpoint between "very
extensively" and "extensively") to
2.15 (slightly above "minimally") with an
average mean of 3.40.
The attorney respondents rated one topic,
record-keeping obligations, as requiring
"extensive" to "very extensive"
coverage. The business respondents rated five topics
of law requiring "extensive" to "very
extensive" coverage. They were: accounts
receivable, recordkeeping obligations, hiring and
firing, income taxes, and collections.
The attorney respondents rated 32 topics of law as
requiring "moderate" to
"extensive" coverage; 13 topics as
requiring "minimal" to "moderate"
coverage; and 2 topics below the "minimal"
coverage level. The business respondents rated 32
topics of law as requiring "moderate" to
"extensive" coverage; 11 topics as
requiring "minimal" to "moderate"
coverage; and no topics below the "minimal"
coverage level.
Ranking levels. Eight topics were
ranked with ten or more points difference in the
level of ranking between the two groups. The eight
areas that were ranked the most differently were;
advertising, lawsuit procedures, negotiable
instruments, Occupational Safety and Health Act
(OSHA), security interests shareholder agreements,
social security taxes, and termination of businesses.
A comparison of means between the eight areas
indicates a mean point difference between attorneys
and business owners as follows: advertising (.43),
lawsuit procedures (.56), negotiable instruments
(.35), OSHA (.75), security interests (.61),
shareholder agreements (.14), social security taxes
(.46), and termination of businesses (.15).
Highest ranked topics. Table 4 represents the ten topics
of law ranked highest by each group. The business and
attorney respondents were in agreement as to the
importance of all the ten topics of law.
Four topics - hiring and firing, collections, sole
proprietorships, and financing/loan agreements and
consumer credit laws- were given the same relative
ranks by both groups.
Lowest ranked topics. Table 4
also represents the ten topics of law ranked the
lowest by the small business and attorney
respondents. The business and attorney respondents
were in agreement as to the importance (or relative
unimportance) of eight of the ten lowest ranked
topics of law. The two topics of law ranked by the
business respondents in the bottom ten but not ranked
by the attorneys in the bottom ten were termination
of businesses and security interests. The two topics
of law ranked by the attorney respondents in the
bottom ten but not ranked by the business owners in
the bottom ten were court systems and lawsuit
procedures. Three topics - bonds, import regulations,
and export regulations- were given the same relative
ranks by both groups.
Similarity of responses. Similar
to the areas of law, the business respondents tended
to rank the topics of law higher than the attorney
respondents as indicated by an average mean of 3.40
as opposed to the attorney average mean of 3.23.
However, the pattern of responses between the two
groups was substantially similar as is seen in Figure 2.
Discussion
The survey results indicate that there is
substantial agreement between attorneys and small
business owners in South Dakota as to what areas and
specific topics of law are important to small
business owners. Although the business respondents
tended to rank most areas and topics as slightly
higher in importance than the attorneys, the overall
pattern of responses as shown by a graphical
representation was substantially the same.
Further, both groups were in total agreement as to
the ten least important areas of law and the ten most
important topics of law. Additionally, the
respondents agreed as to seven of the ten most
important areas of law and as to eight of the ten
least important topics of law. The similarity of
ratings, rankings, and pattern of responses between
the two groups enhances the validity of the findings
as they tend to validate each other.
However, some differences in rating and ranking
did occur. Although most of the differences were
small with respect to the comparison of means, there
were a few notable exceptions. An exception among the
topics of law was OSHA which deals specifically with
workplace safety. Business owners rated OSHA as
requiring "extensive" coverage (3.6) while
attorneys rated the topic as requiring
"moderate" coverage (2.85). This exception
may indicate that governmental safety regulation of
the workplace has a greater impact on small business
owners than is perceived by legal practitioners.
Among the areas of law, the business respondents
placed great importance on the area of tort
liability. The business owners rated personal injury
law as requiring "extensive" coverage
(3.62) while the attorney respondents rated it as
mid- point between "minimal" and
"moderate" coverage (2.45). Additionally,
the business respondents, but not the attorneys,
named product liability among the ten highest ranked
areas of law.
On the other hand, the attorneys appeared to be
more concerned about liability arising out of
business transactions. Contract law was ranked as the
number one area of law by the attorneys.
Additionally, commercial sales and commercial paper
were ranked among the top ten attorney areas but were
not ranked in the top ten by business respondents.
The significant difference in rating between tort
centered areas of law and business transactional
areas of law may indicate that tort liability
concerns weigh heavily on small business owners.
The findings can be applied to provide valuable
insight into the current area and topic coverage of
business law and legal environment courses as well as
in developing small business law courses.
The American Assembly of Collegiate Schools of
Business2 (AACSB) requires that the business school
curriculum provides exposure to the legal and
regulatory environment of business. As a result, most
AACSB schools require that undergraduates enroll in a
legal environment of business or similarly titled
course. Typically, the courses are designed to
introduce students to the United States legal and
regulatory environment. Accordingly, they tend to be
broadly based in terms of subject and topic coverage.
Included in the broad coverage are many areas and
topics of law that received lower rankings by both
attorneys and business owners. Although these areas
such as the constitution, criminal law, intellectual
property, and the court system are important for
general background purposes, the findings indicate
that they should receive less emphasis in coverage in
a course designed specifically for small business
owners.
The findings of this survey present valuable data
on which to structure a law course specifically
designed to provide a legal framework for the
operation of a small business. Generally, business
school students must take three to four law related
courses to gain an exposure to most of the areas and
topics listed as demanding the most extensive
coverage. However, most students do not have the
available credit hours to devote to several law
courses. Using the relative ratings and rankings of
areas and topics of law as a blueprint, a course can
be effectively designed to provide information that
would be of the most utility to small business
owners. Tailoring a law course to provide the areas
and topics most important to small business owners
would allow students to obtain the necessary legal
background by enrolling in one course as opposed to
taking three to four courses.
The ratings of the areas and topics of law
indicate their relative importance in the law
component of business school education. One topic of
law that was ranked high by both attorneys and small
business owners was ethics. The attorneys ranked
ethics as the number four topic while the business
owners ranked it as number six. The high ranking by
each group gives support to the importance of ethics
in the legal and business world and to the importance
of ethics as a component of the business school
education.
Lastly, two important limitations must be noted.
First, the emphasis of this study was to determine
the areas and topics of law important to the small
business owner and therefore should not be
generalized as to those areas and topics important
for large businesses. Secondly, the survey dealt with
individual perceptions that were averaged into means
for comparison purposes. Although such a comparison
is useful, averaging tends to hide and blend
individual differences.
Conclusion
Consensus exists between practicing attorneys and
small business owners as to what areas and specific
topics of law are most important for the small
business owner to know. Although some differences
were noted with regard to tort and contract
liability, the responses of both groups were
substantially the same. The existence of the
consensus provides an excellent blueprint on which to
build a small business law course specifically
tailored to provide the greatest utility to small
business owners. Additionally, the findings can be
applied to provide valuable insight into the area and
topic coverage of current business law and legal
environment courses.
Endnotes
1. The survey was funded by a University of South
Dakota Faculty Development Grant.
2. The AACSB is the major
accrediting organization for business schools
nationwide.
About the author:
Bruce E. May is Assistant
Professor of Business Law, School of Business,
University of South Dakota. He received his
Doctorate of Business Administration (D.B.A.)
from United States International University and
his Juris Doctor (J.D.) from the University of
San Diego. He has extensive experience in
representing small and medium businesses in
business and legal matters.
