Small Business Legal Issues

Managing a small business can be a challenge and is only further complicated if the business runs into legal trouble. Here are a few common small business legal issues and how to avoid them.

Frivolous Lawsuits

One of the biggest and costliest small business legal issues are frivolous lawsuits. The court considers a lawsuit frivolous when the case lacks legal merit or sufficient evidence. Usually, parties settle cases outside of court but this can still be a costly process.

How to deal with it:

Binding Arbitration:

Including a binding arbitration clause in contracts can usually avoid frivolous litigation. A binding arbitration clause requires any disputes to be settled by a third party arbitrator who will make an objective decision based on the facts. This will allow both parties to avoid much of the high costs of litigation.

Keep accurate records:

Keep records on any transactions, employees, independent contractors, disputes, finances and previous litigation involving your business. These records can help settle any disputes quickly without the need for further legal action.

Use contracts:

Contracts are an effective tool for avoiding litigation because they inform both parties of what their obligations and rights. Creating contracts between business partners, employees, independent contractors, landlords, and clients will help avoid surprises and issues in the future.

An important note:

Contracts are like suits.

The best ones are tailored to fit. There is no single template that you can effectively use universally. So, have an attorney draft each contract.

Communication is key.

Before taking any legal action, reach out to the other party. Many lawsuits can be avoided simply by clearing up any possible misunderstandings or miscommunications.

Workplace Accidents

Many small business legal issues involve workplace accidents. Workplace accidents can lead to long, drawn-out legal battles that could end up costing a small business a lot of money.

How to deal with it:

  • People can avoid workplace accidents simply by maintaining the business property and ensuring the safety of everyone on the premises. A few renovations will be a lot less costly than the legal battle that would follow an injury. And also, no one wants to be responsible for an injury, especially an easily preventable one.

Infringement on Intellectual Property

Use on another individual or business’s intellectual property can lead to litigation. Likewise, you have the right to sue if someone infringes on your intellectual property rights.

How to deal with it:

  • Familiarize yourself with intellectual property law.
  • Check to see if you are not violating any copyrights, trademarks or patents.
  • Make sure to copyright, trademark, and patent any of your own original work.

Disgruntled Employees

Employees who claim wrongful termination or harassments can create serious issues for a small business owner.

How to deal with it:

  • Use contracts: Once again using contracts can help avoid many legal issues. Inform employees of their obligations and the consequences should they fail to meet those obligations. Contracts should also be used when hiring independent contractors. Also be sure to fulfill your contractual obligations to your employees.
  • Explain the reasons for termination: discussing the terms and reasons for the termination with the employee will help avoid future issues. If possible have the employee sign documents stating that they understand these conditions.

Tax Issues

All businesses must file taxes with both the IRS and the state from which they operate. Failure to do so can lead to costly and time-consuming litigation.

How to deal with it:

  • Keep accurate and extensive records of all finances and tax documents related to the business.
  • Be sure to file all appropriate taxes on time.

Legal issues for a small business can sometime be unavoidable. If your small business faces legal trouble, the best thing to do is to contact an experienced attorney who will help you resolve the problem quickly and effectively.

This post is for informational purposes only. It is not intended to be, nor should it be construed, as legal advice. Always consult an attorney, licensed in your state, before taking legal action.