Top Legal Issues Small Businesses Face


Chloe Rogers

Oct 22, 2022


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No business owner wants to face adverse legal action. Legal problems can be an enormous setback for small businesses, and if you have to hire a lawyer, your company may suffer an additional financial burden.

Whether you are a new small business owner or have been carefully building your enterprise for years, being prepared to face potential legal challenges is wise. Plus, maintaining a good reputation is essential as you work hard to distinguish your small business from the competition.

Legal representation

While having a skilled and dependable business lawyer on retainer is always a smart move, it is also wise to know how to prevent legal issues from occurring in the first place. After all, in today's challenging market, preventing problems before they start is the name of the game!

For this reason, it can be helpful to be well aware of the most common legal issues that businesses, especially small businesses, often contend with. Here, we will discuss some of the most common legal issues small businesses face so that you will be better prepared to avoid them entirely.

Structuring Businesses Improperly

One common legal issue business owners face is initial company structuring. Using the incorrect business structure or entity can cause legal issues. For lawful and tax purposes, businesses must be set up following the proper entity structures. Selecting the incorrect business structure can have severe ramifications legally, especially if you are a sole proprietor, as you could face personal liability.

Businesses can choose between entity structures such as

  1. LLC
  2. S-Corp
  3. C-Corp
  4. Partnership
  5. Sole proprietorship

Every one of these entities implements different tax structuring laws. As with LLCs, some can be viewed as separate entities entirely. Consequently, setting your business up the right way will be incredibly important later on down the road when it comes to avoiding legal problems. Especially if your business starts bringing in lots of revenue!

Lacking Solid Contractual Agreements and Documentation

Woman signing legal papers

You'd be surprised how many businesses and startups hire employees or engage in partnerships, with word-of-mouth agreements as the only assurances. A mere handshake isn't enough to protect you legally. This is a reckless way to begin any kind of business.

Not only can serious litigation issues develop later down the road, but payments, contracts, and other promises should always be made legally and on paper. Sound legally enforceable contracts may seem stern at first but are actually essential in helping you prevent serious issues in the future.

Contracts can be used to protect you and may stipulate things like

  1. Employee or partner duties
  2. Contact start and end dates
  3. Salaries and roles
  4. Standards for hiring employees
  5. Reasons for termination
  6. Company Policies
  7. Licensing agreements
  8. Real estate purchases, and liability

Make sure to draft all contracts and agreements with the help of your preferred law firm. This will ensure that everything you, your partners, clients, or employees sign will be legally enforceable in case of a dispute.

Also, keep track of your books correctly! Tax issues can be detrimental to small businesses. Ensure you are “in the green” regarding invoices, receipts, ledgers, contracts, books, and all your paperwork or legal documentation.

Trademark and Licensing Issues

Trademark icon and a gavel

Licensing violations and trademark infringements are other common problems that small businesses often face. Choosing a business name free of trademark troubles is important. You've got to research the company name you go with carefully to make sure that you are in the clear.

Not to mention, domain issues and infringement problems can be a real hassle legally. Having to change your business name can be incredibly costly and may also seriously hurt your brand! Moreover, you don’t want to fight for a web domain name because someone else came and bought it from under you.

Not Having a Lawyer

No matter how big or small your business is, you've got to have solid legal counsel. Small businesses are incredibly vulnerable to legal problems. You should have a skilled and experienced business attorney to protect your business. Your lawyer can help you look over documents, discuss future company decisions, and will help to protect you from litigation in general.

Your lawyer can also assist you if something transpires to initiate litigation against you or your business. Before hiring your first employee, you should employ an attorney to aid with taxes, documents, and other business decisions. That way, your attorney can help you determine which business structure to choose for tax purposes, give you legal advice on business licensing, and assist you as you draft any employment contracts.

Failing to Protect Your Intellectual Property

Small businesses and startups are often fertile with amazing ideas. Some of the most excellent products, marketing strategies, and unique concepts come from small businesses. However, small businesses are notorious for failing to acquire adequate trademarks, patents, or copyrights to protect their intellectual property. Sometimes, their best all-original ideas are stolen or infringed upon without them being able to do anything legally about it.

So, take the proper preventive measures to protect your business's intellectual property before problems arise. That way, you can keep attracting new customers and growing your enterprise at a steady pace!

Taking Proactive Measures and Preventing Legal Issues

Although this list can feel somewhat disheartening, it is important to know that many legal issues can easily be avoided through proactive business practices and a basic understanding of business law.

Also, remember that different types of businesses in different industries face diverse legal challenges. The realm of business law can be fraught with complexity. Where one business may face an onslaught of technicalities and legal issues, another business or sole proprietorship could sail through everything smoothly.

Organization structure map

Making sure that your business is structured properly, your employees are hired correctly, and your contracts are legally sound is a great place to start. Your attorney will be able to help you with the rest. Sound legal counsel can protect you and your business to help encourage a brighter future with fewer legal complications.

Legal Issues Small Businesses Face: Final Thoughts on Business Law and Its Complexity

There you have it; the above are some of the most common issues businesses in the US must navigate regarding legal matters. It is important to be clear that this article is not intended to provide you with legal advice. Your business lawyer can help with that!

Still, it can be helpful to know what to keep an eye out for when avoiding problems and running a small business. This is especially true if you are working hard to help your enterprise off the ground. Bearing that in mind, we encourage you to keep doing your research and stay up to date on the latest business information and legal articles!

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