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The Most Common Legal Issues Small Businesses Face

As a small business owner—with the jack-of-all-trades nature of the position and the various decisions in need of making—it’s easy to forget about the legal challenges you’ll have to prepare for. You get so caught up in the success and daily operations of your business that you lose sight of the fact that litigation can destroy it far more effectively than a bad day of sales. With that in mind, there are some legal issues that small businesses are more likely to run into than others. 

From learning about the different types of business contracts to paying for the right kind of taxes, there are a number of things small business owners must know before opening up shop. Legal services from a trusted law firm can help you identify potential problems and prepare for the future. Below, we’ll discuss some of the common problems so you can prepare accordingly. 

The Most Common Small Business Legal Issues

Naturally, the legal issues you’ll face are highly dependent on your field of work; however, there are some litigious factors that seemingly crop up in every field: 

  • Selecting the wrong business structure or entity – For tax and legal purposes, it’s essential that you set up the proper business structure. Selecting the wrong one can have severe consequences, especially if you mark yourself as a sole proprietor, thus opening you up to personal liability. The entities you’d commonly select from include:
    • Sole proprietorship
    • Partnership
    • LLC
    • C-Corp
    • S-Corp 

Each one of these has different tax structuring and dissimilar ways of legally viewing the owner and business; sometimes, as is the case for LLCs, they’re viewed as entirely separate entities. With the help of a small business attorney, you can select the optimal business structure. In addition, you can switch your structure to take advantage of the new tax plan. 

  • Employee hiring and firing – Far too many startups make the mistake of hiring employees or starting partnerships with the only thing binding them being a word of mouth agreement and a handshake. Simply put, this is foolhardy and one of the easiest ways to expose your business to lawsuits. While it may be smooth sailing initially, if problems crop up or the business relationship ends, it can devolve into serious litigation regarding company ownership, payments, or promises made.

Whether you are adding a partner or a new employee, it’s vital that you set out a contract from the get-go which stipulates everything from:

    • Employee rights 
    • Roles
    • Duties
    • Salary
    • Benefits
    • Contract date
    • Possible reasons for termination 

Further, if you do fire an underperforming employee, it’s essential that they sign an attorney-drafted termination contract so that they know the exact reasons for their firing. Simply letting them go without a termination form leaves you terribly exposed to hostile legal action. 

  • Licensing – Licensing is one of the common legal issues that many business owners know little to nothing about. As such, it’s essential that you are aligned with government restrictions for business licensing. Failure to do so could result in detrimental fees or could even cause your business practice to come to a forced halt. Costs and requirements of licensing will vary depending on your location, but it’s a universal requirement. Your small business lawyer can help you prepare accordingly, ensuring that your actions are above-board. 
  • Discrimination – These days, in this litigious business climate, lawsuits are surfacing on the grounds of alleged discrimination. Examples may include:
    • Sex
    • Race
    • Age
    • Religion

Unfortunately, many of these types of lawsuits are groundless; however, it’s still important for a business owner to prepare for any situation. To avoid this issue, your HR professional and your lawyer should work together to handle any problems that might arise. 

  • Harassment – The #MeYoo movement revealed both the good and bad of highlighting harassment in the workplace. While there were many people who rightfully emerged to tell their story of harassment, there were also several grifters who attempted to take advantage of the movement by riding the wave of public sentiment. Many businesses were hurt in the wake of this crusade—some rightfully, others mistakenly. 

To prevent this from happening in your workplace, hire high-quality workers and promote a work environment that detests hostile and discriminatory behavior. In addition, train your employees, staff, managers, or anyone else working with you to treat each other with respect and to report bad behavior immediately. By taking such actions, you can also protect yourself from baseless accusations. 

Hire a Lawyer

The issues discussed above are but a hint of the possible legal issues any small business might face during everyday business practices. Each one of these lawsuits could lead to financial ruin. To that end, it’s critical that you enlist the help of an experienced legal team. They will serve as your backbone, safety net, and Sherpa as you navigate the trenches of the small business landscape. 

With more than two decades of small business law practice, the team here at Briggs Law Corporation has seen nearly every trick in the book. We’ve built up a lifetime of experience in protecting our clients and their small businesses. By relying on us, we can help you successfully travel through the rocky shoals of the litigious business world. 

To learn more about how we can help your business, visit our website or call to schedule an appointment with one of our business lawyers today. 


“This blog article is for informational purposes only, and is not a substitute for client- and fact-specific legal advice from a qualified attorney.”



Forbes. Top 10 Legal Mistakes Small Business Make.

Zent, M. Inc. 7 Legal Issues Every Business Owner Needs to Address in 2018.

All Business. Are There Common Legal Problems Businesses Should Avoid?

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