Top 4 Legal Challenges for Small Businesses


Steve Thompson

Mar 22, 2022


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Some of the top legal challenges for small businesses actually involve proper filing with the state. It may seem like a simple issue on the surface, but many times it comes down to getting the right legal advice. Here's a look at the challenges small businesses face in their struggle to build a successful operation.

Common Legal Challenges


Choosing the right business structure at the start of a venture is crucial. The way you set up a business - whether as a corporation, LLC, partnership, sole proprietorship, or another type - determines how you will conduct business and report to authorities. If your operation and tax filing isn't consistent with its business structure filing, it can lead to severe fines and other penalties.

Licensing is another one of the top legal challenges for small businesses. Using software without proper licensing with the manufacturer is one side of licensing requirements. Another side is failure to comply with government licensing, which may relate to location. If your business is selling real estate, you must meet state requirements for getting a real estate license through a school approved by the state. Firms operating without proper licensing can be shut down by authorities.

Businesses may also get sued for misrepresenting a product or service in advertising. If the offering fails to deliver what it promised in marketing literature designed to attract attention, the customer can claim losses due to being misled. Businesses looking to maximize profits must do so in a way that doesn't trick customers. A company can avoid falling into this trap by learning how to increase revenue per customer without deceiving people.

Intellectual Property Issues

Copyrights trademarks and patents all fall under the umbrella of intellectual property, which is protected by law. Every business potentially owns the intellectual property, starting with its logo. If a competitor starts using ideas that are similar to your marketing materials, it can lead to suing the company. Likewise, your business can get sued if your artwork and imagery in marketing mirrors the work of a competitor.

An example of an intellectual property dispute is if you decide to include copyrighted music in a radio or TV commercial without securing permission from the copyright owner. You might assume the music is public domain material or that no one will care or notice. Borrowing notes or lyrics from a popular song can be grounds for a copyright infringement lawsuit. Using someone else's video or photography in ads without permission can also lead to intellectual property cases.

Bodily Injuries and Property Damage

Old man on the floor after an accident at work

Accidents can happen at any physical location, as anyone can slip and fall on a wet or slippery surface. It's up to the establishment to maintain a safe environment for workers, patrons, and other visitors. Another way a person can get injured at an establishment is if they are assaulted by someone. This problem can happen at a venue that serves alcohol. It's imperative for all businesses to do what they can to reduce or eliminate risks that can lead to hospitalization.

If your company deals with dangerous chemicals, you can face lawsuits from employees and customers who become ill following exposure to these toxins. A restaurant or a hotel must pass health inspections or face lawsuits and fines due to negligence. It's also important for any business to protect the privacy of customer financial data. Cybersecurity breaches can lead to massive lawsuits.

Employment Issues

Sometimes disgruntled former employees try to get back at their former employers by filing a lawsuit related to why they were wrongfully terminated or forced out of the company. A small business owner must communicate its policies with staff members to prevent a loose atmosphere that fosters disrespectful behavior among employees or management. Employers should issue contracts that employees are required to sign as evidence they are aware of company policies.

Every business that hires people must function as an Equal Opportunity Employer (EOE). Failure to do so can lead to a discrimination suit filed by an employee who claims they were mistreated, leading to financial and emotional pain. Companies must avoid discrimination against employees for any reason such as age, gender, race, and religion. Suits might also arise from harassment in which employees are humiliated by coworkers or managers.

Sexual Harassment Complaint

A workplace issue that has escalated in recent years is sexual harassment in which female workers are approached by male coworkers with unwanted flirtation or sexual advances. Sometimes stories about harassment that are over twenty years old can be hidden from management then erupt one day in the media. At one time women were discouraged from whistleblowing related to this improper conduct, but in recent years many have finally come forward to complain how harassment hurt their career at a particular organization.

It's now crucial for all employers to communicate worker rights and responsibilities to staff. All workers must understand that their jobs may be at stake if they don't practice ethical behavior and follow company policies.

Legal Challenges Involving Social Media

Defamation is another issue that can cause a business to face legal trouble, particularly if an employee lashes out at another company on social media. While it's ok for individuals to express their opinion about a brand, it's not ok to intentionally smear an organization with false information. Sometimes these fake smears can come from competitors looking to reduce competition. Businesses use social media to attract leads, but negative content can do the opposite.


All types of business entities must meet legal requirements or face legal consequences. Small businesses are particularly vulnerable to getting fined for following improper legal advice. When you decide on a startup, it's critical to ensure your business meets federal, state, and local requirements and operates within legal and ethical boundaries. If you need guidance through the digital marketing maze, contact the small business marketing experts at E-Marketing Associates, we help businesses grow.

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