Legal Mirrors of Entrepreneurship

Abstract

Small businesses are regarded the engine of the economy. But just what is a "small" business? Depending on where one looks in the law, the definitions vary and they differ from one section to another. Unfortunately, what these various size classifications fail to assess, are the policy considerations and the legislative intent for granting regulatory preferences to small concerns to begin with.

In the last century, the U.S. government has been cultivating one such policy of fiscal and economic growth. Consequently, Congress and private institutions have been acting to incentivize, support and reward entrepreneurship through the law in order to stimulate the economy. Nevertheless, rather than targeting entrepreneurial businesses directly, the law grants preferences to entities according to their size reflecting an obsolescent mirror of past economies. Today, while most entrepreneurial firms may start small, not all small firms innovate and create new economic value.

This article applies "mirror theory" and proposes a novel legal model that strives to correlate between the design of our legal rules, the goals they set to advance, and the societal trends they reflect. The article suggests replacing the current size-based approach in our laws with a model that measures firms’ entrepreneurial orientation. Unlike the current binary small-or-not standard, this multi-tiered, simple, and flexible model reduces the intrinsic arbitrariness, complexity, and uncertainty in current legal definitions.

Keywords: Entrepreneurship, Small business regulation, Business regulation, Tax law, Innovation, Schumpeter, Mirror Theory, Economic Development, tax law, capital formation, intrapreneurship, Knowledge Spillover

JEL Classification: K34, K20, H25, M13