Page 184 - Business Principles and Management

Chapter 7 • Legal Aspects of Business

State and Local Regulations

The federal government regulates interstate commerce, and individual states
regulate intrastate commerce. Interstate commerce is defined as business oper-
ations and transactions that cross state lines, such as products that are pro-
duced in one state and sold in other states. Intrastate commerce, on the other
hand, is defined as business transacted within a state. Most small service firms
are involved mainly in intrastate commerce, because they usually sell to cus-
tomers located within the same state. Because most large companies are likely
to be involved in both interstate and intrastate commerce, they are subject to
state and federal regulations.
Moreover, each state has a constitution that allows it to create other govern-
ing units, such as cities, towns, and counties. These units also regulate business
transacted within them. Large businesses especially are subject to local, state,
and federal laws.
Many state and local laws are related to federal laws. Most states, for
instance, have laws that promote competition, protect consumers and the
environment, safeguard the public’s health, and improve employment condi-
tions. In addition, however, state and local governments regulate business
by issuing licenses, franchises, and building codes, and by passing zoning
regulations.

LICENSING

State and local governments have used licensing as a way to limit and control
those who plan to enter certain types of businesses. To start a business that
requires a license, the owner must file an application. If the government believes
there is a sufficient number of these kinds of businesses, the application can be
refused.
Business is regulated not only by the granting of licenses but also by regular
inspections by government officials to see that the company is operated according
to the law. If it is not being properly operated, it can lose its license. For example,
government agents inspect a licensed restaurant from time to time for cleanliness.
If the restaurant fails inspection, the government may withdraw its license, and
the restaurant would have to close.
Licensing laws vary from place to place. In some cities, businesses of all types
must obtain licenses, whereas in other communities only certain types need
licenses. It is particularly common to license restaurants, beauty salons, health
and fitness centers, barbershops, and other types of service firms that may affect
the health of customers. In most states and in many cities, licensing laws regulate
the sale of such items as liquor and tobacco.
Businesses may also license the use of property. For example, a computer
software company may give a business a license to use and copy a software pro-
gram in return for a fee. Likewise, for a fee a business may license another firm
to make a product using its patented device. Even firm names can be licensed.
For example, Walt Disney Productions licenses its animal characters for use on
clothing and other products.

PUBLIC FRANCHISING
Another way for state and local governments to control business is through pub-
lic franchises. A public franchise is a contract that permits a person or organiza-
tion to use public property for private profit. No individual member of society,

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