Common Legal Problems for Small Businesses

Common Legal Problems for Small Businesses

For small business owners, legal issues can be both distracting and dangerous. They require time and attention from the business owner that is better used growing their company. In addition, legal matters put owners in a difficult position because they are dealing with matters that are unfamiliar to them. If they make a mistake, it could have legal ramifications for their business and possibly even make them liable for financial damages. Understanding some of the common legal problems for small business owners will help businesses be prepared in the event they arise.

Several studies, including one compiled by the Small Business Administration, have found that roughly half of small businesses either face litigation or the threat of it on an annual basis. Legal problems for your business can result in the following:

  • Loss of revenue
  • Loss of customers
  • Damage to your reputation or that of your business
  • Production delays
  • Inability to take on new work

To ensure the best possible outcome, all legal problems for small businesses should be resolved with the assistance of an experienced business attorney. Some of the common legal problems for small businesses include:

Employee Issues

Small businesses need to hire and staff a workforce. They likely do not have the corporate infrastructure in place to properly manage legal issues. Not only may a small business need to navigate employment agreements, but it may also need to handle disciplinary and termination issues. Employment matters put businesses at unique risk.

Small businesses may also need to address the following employment issues:

  • Non-disclosure agreements
  • Policies and procedures to protect staff from harassment and discrimination
  • Proper classification of employees
  • Wage and hour issues
  • Providing employee benefits in accordance with the law

Mistakes in any one of these areas could result in your business’s information being compromised, or you or your business being subjected to costly litigation.

Intellectual Property

A business may have invested time and effort in developing its intellectual property, or creations of the mind used in commerce. The following are considered intellectual property:

  • Patents
  • Trademarks
  • Copyrights
  • Trade secrets

Without the proper protection, someone else may use the intellectual property you have spent money developing or acquiring without paying you for it. Intellectual property law can be complex and present its unique challenges. You must actively take steps to protect your intellectual property by registering it and enforcing your rights. In addition, you may also need to draft non-disclosure agreements and enter into licensing arrangements. These often require negotiations that are best handled by an experienced business attorney.


Contracts are the lifeblood of a small business. All of your agreements will need to be memorialized in a written document that gives you both rights and obligations. Despite doing this, breach of contract issues remains the most common reason why small businesses end up in litigation. If you are involved in a contractual dispute, a court will look to the exact language of the contract to determine whether there is a right to a remedy.

Contracts are too important for you to try a do-it-yourself approach. All it takes is one misplaced word or even one errant comma, and your rights or obligations can be changed from what you originally intended. If you make a mistake, your contract may not even be enforceable when the time comes to take action.

In addition, you may have a contract dispute with another party that could require the involvement of an attorney. Your lawyer could help you either negotiate a solution with the other side or file a lawsuit on your behalf. You may even be sued by another party, and your attorney can defend you and your business.

Regulatory Compliance

Your small business may need to comply with several requirements from a multitude of regulators. For example, your company may participate in a Small Business Administration program which will have its requirements to receive assistance. In addition, your business may need various permits to operate.

Regulation can mean paperwork, and paperwork means time. Staying on top of compliance requirements and meeting them could distract you from revenue-producing activities. The regulations your business must comply with could be continuously changing, and you will need to keep track of the ever-changing landscape.

Corporate Structure and Governance

Small businesses must formalize a structure and institute corporate governance measures. These begin with entity formation. Businesses must choose the proper corporate form and draft the necessary documents to allow the business to operate. These documents can include bylaws and shareholder agreements. The corporate form you choose could determine whether you can be held personally liable for business debts as well as the taxes you must pay. You must make the right choice at the outset to give your business the best chance of success.

In addition, customers, stakeholders, and potential investors will want to see that your business has an official imprimatur. Having robust corporate governance documents and procedures in place will make your business look organized and attractive to potential stakeholders.


Federal and state tax laws are among the least straightforward regulations on the books. The only certainty your business will face is that you will need to pay taxes if you earn a profit. After that is where things can get complicated. Different tax structures could affect your business. The choices you make may dictate how much you pay in taxes. In addition, making a mistake on your taxes can cost your business money. You should consult with an experienced tax law attorney to learn about the most advantageous structures and how your business can remain in compliance with tax laws.

All of the above areas require specialized knowledge from an experienced business litigation attorney. They can get to know your small business and partner with you as you grow. In addition, your lawyer can anticipate legal issues and help you get out ahead of them.