Publication Date

2012

Abstract

What is a “small business” in the eyes of the law? There is not one standard definition. Current legal definitions of a firm's size are inconsistent and overinclusive. They vary from one area of the law to another and within various sections of the same law. They create a skewed picture and result in data distortion that reinforces favoritism toward small entities, as studies on the contribution of small businesses to the economy are greatly dependent on these studies' delineation of the term “small.” In this time of huge deficits and rise in economic inequality, a lot of money is being spent based on the entrenched belief that small firms are the essence of our economy, which is not necessarily true. Therefore, this Article argues that the current focus on size in many legal definitions is a waste of both time and money. This Article provides a comprehensive survey of legal definitions of small entities and the policy considerations that underlie these delineations. This Article concludes that the historical emphasis on magnitude no longer functions effectively. Current legal demarcations concentrated on “smallness” generate undesirable distributional effects, produce inefficient allocation of government resources, and defeat policy considerations of promoting entrepreneurship and economic growth. The recent proposal to integrate the Small Business Administration with other federal commerce and trade agencies into one super pro-business agency is yet one more step toward this proposed shift from a size-centered to a goal-driven approach.

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