Business Essentials: Common Legal Issues for Small Businesses

After establishing your startup business, the world gets a bit more complicated. You’ll find yourself dealing with several issues and decisions that most people would never have to consider—and legal inconveniences are a common side effect. So, like how you’d hire a family attorney to settle domestic issues, having a ‘business’ attorney is crucial for your business’s longevity.

Here are some of the most common legal issues you may face as a small business—and how you can avoid them.

Employee Termination

It happens to most business owners. You hire an individual you believe to be qualified for the set tasks but soon realize you’ll be losing money if you keep them around—or find out they don’t fit in with the rest of your team. When terminating an employee, reduce your chances of legal repercussions by taking the right precautions before firing someone, such as spelling out employment terms in your employee manuals and documenting everything.


Ensure you classify your workers correctly as your local government requires. That’s because misclassifying employees as independent contractors can get you one of the most serious legal issues facing affected employees, business owners, and the economy. In short, the federal government takes this subject very seriously, so before classifying a staff member as an ‘independent contract,’ read the DOL guidelines beforehand.

Shareholders’ Agreement

If your company has over one shareholder, getting an agreement is advised. That’s because if ever your business splits up or you decide to sell it, and no agreement was made between the shareholders, legal battles will ensue. So, make sure to have a shareholders’ agreement drafted or overseen by a capable lawyer.

Ignoring Tax Laws

Nearly everything in a business has tax considerations. If you don’t follow the tax laws applicable to your organization, you’ll be facing expensive legal issues with your local, state, or federal government. The penalties for not paying taxes are very steep, and your business’s liability continuously grows until you have an agreement intact to remedy the problem.

women looking at laptop

Compromised Intellectual Property

Although ‘intellectual property’ (IP) may sound like something only a massive enterprise would have, it usually pertains to any individual or organization with a patent, trademark, and copyright. Intellectual property law is a crucial component of technology companies’ protection, running on ideas more than physical goods. If a third-party were to steal your IP and use it without consent, you would lose your business. If you do not have any legal protections for your IP, you’ll have no recourse to take any action against the loss of your property.

Business Licensing

Licensing is one of the most common legal problems small businesses face. So, ensure you abide by your local government’s requirements for business licenses. Otherwise, you’ll likely find yourself paying hefty fees that you could’ve easily avoided. The cost of business licenses depends on where you’re operating, but it’s typically required throughout the country.

Skipping Insurance

Like business licenses and contracts, business insurance protects your company from liability. All businesses need general liability insurance and other policies such as workers’ compensation and product liability insurance, depending on your business’s nature. Insurance protects your business’s bottom line in the long run.

It’s best if you hire a lawyer that can make contracts with the right language to ensure your business assets’ security and guide you through the complexities of the US tax code.

Small business owners need to address several legal issues to protect themselves and their organizations—and those mentioned are some of the most common ones you can face. Addressing these issues fast can save your business from expensive legal problems early on, so make sure to familiarize yourself with them and have a reputable lawyer by your side.

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