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  • Writer's pictureRic Armstrong

The Most Common Small Business Legal Issues

Small business owners are often faced with various legal issues that can be crippling to their business. One of the best ways for them to circumvent these issues is to identify potential problem areas early and prepare for them by having a trusted business lawyer. These are the seven most common legal issues that businesses can avoid.

Business Formation

Every business needs to start on the right footing and this includes the structure of the business. The wrong business structure for the type of business can have serious tax and legal consequences.

Business structures include sole proprietorship, partnerships, LLCs, and corporations. A sole proprietorship can leave the business owner vulnerable to personal liability. The business structure can be changed later, but it should be set up properly from the start. Attorneys can best advise potential business owners about which structure suits their business type best.


Each state has different business licensing requirements and these licenses are issued when a business is first started. Many business licenses need to be renewed annually if a business is to remain compliant. Failure to pay these licenses can lead to penalties and cancellations for the business.

Employee and Partner Agreements

In the U.S. one of the most common legal problems is “wrongful termination” claims made by employees. Contracts are essential when hiring employees because word of mouth and handshakes are not considered binding. The same principles apply to partnership agreements.

Employees’ contracts should stipulate their rights, roles, duties, salaries, benefits, and contract dates. They should also mention the possible reasons that can lead to their dismissal, and employers are required to document disciplinary actions against employees. When a business wants to fire an underperforming employee, they should never do so without a termination contract drafted by an attorney.

Discrimination and Harassment

Alleged discrimination cases can be harmful to a business and it’s up to owners to prove that they have a fair hiring process. They should keep the resumés of applicants for each position in case any future allegations arise. Employers must prove that they hired the most qualified individual for the job, regardless of age, ethnicity, or gender.

Harassment comes in various forms and mostly includes sexual, race, and religion. These should not be allowed to fester in any work environment because they can be bad for the image of the business and carry huge legal costs. Regular staff meetings and the creation of a culture that frowns on these two practices should be encouraged in all business environments.

Misclassification of Employees

Employees must be correctly classified as far as The Federal Department of Labor is concerned. According to the department, many businesses wrongfully classify employees as independent contractors to avoid paying Workers’ Compensation.

All employees, except subcontractors who have their own business, must be classified correctly otherwise businesses can face criminal charges.

Copyrights, Patents, and Trademarks

The development of new products always needs to be researched carefully for any existing patents or copyrights. Many companies make easy money by patiently waiting for someone to violate their patents. These types of legal battles can drag on for years, are messy, and cost lots of money.

Additionally, trademarks have to do with the name of a business or product that is already owned. Before launching a business or product the names should always be researched because even an honest mistake can cost dearly.

Lawsuits by Dissatisfied Customers

Issues with dissatisfied customers can be avoided by businesses. They need to have a hands-on approach and to address issues as soon as they arise. Faulty products should be recalled and customer support plays an important role in avoiding class action lawsuits and litigation. Some issues can be settled out of court, but if enough dissatisfied customers get together and file a class-action lawsuit, a company stands to lose millions and the brand’s image can be irreparably damaged.

Preventing Legal Issues

Even though these are the most common legal issues faced by businesses today, others worth mentioning are tax issues, and disputes with contractors or competitors. Most can be avoided with a proactive approach and good legal advice.

source: legalscoops


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