Business7 common legal issues that small businesses encounter

7 common legal issues that small businesses encounter

For most small business owners like myself, navigating the legal landscape can feel like traversing a minefield. From choosing the correct business structure to having legally sound contracts and terms in conditions in place, there is a lot to consider.  

At some point, it’s likely that you’ll run into a legal issue that has the potential to disrupt or even dismantle your budding enterprise. Understanding and addressing these common legal hurdles is paramount for the sustainability and success of any small business. Here are my thoughts  on the top 7 legal issues small business owners encounter. 

  1. Choosing the right organisational structure

One of the fundamental legal challenges confronting small businesses is entity selection. 

Determining the business structure affects taxation, liability, and operational flexibility. The most common types of structure include:

  • sole trader
  • partnership
  • proprietary limited company (Ptd Ltd)
  • association, or 
  • co-operative.

Each structure entails distinct legal implications, demanding careful consideration aligned with your business’s goals and growth trajectory.

  1. Contract issues

Contractual agreements form the backbone of business operations, yet they also serve as potential sources of dispute. Ambiguities, vague terms, or oversight in contracts can lead to misunderstandings or conflicts with clients, suppliers, or employees. 

Small businesses often encounter challenges in drafting comprehensive, legally binding contracts that protect their interests while fostering transparent and mutually beneficial relationships.

  1. Hiring and firing

Employment law poses another critical area for small businesses. Comprehending and adhering to employment regulations regarding hiring, termination, wages, benefits, discrimination, and workplace safety is essential. Violating these laws can result in costly litigations, tarnished reputations, and operational disruptions.

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Common examples of employment contracts you may want to consider include:

  • Full and part time employment contracts
  • Casual employment contracts
  • Independent contractor agreements.

Ensure your employment contracts have been drafted or reviewed by a workplace lawyer, to ensure that they work in your favour and provide robust legal protection from potenlitigation lawyertial hazards, like disgruntled ex-employees, down the road. 

  1. Protecting your ideas and methods

Intellectual property (IP) rights safeguard a business’s unique assets—trademarks, copyrights, patents—that distinguish it from competitors. However, securing and defending these rights demands vigilance. 

Failure to protect intellectual property can expose your business to infringement issues, dilution of brand identity, and loss of market share.

  1. Taxes – a common pitfall

Taxation, an intricate web of regulations and obligations, often perplexes small business owners. Understanding tax liabilities, deductions, and compliance requirements can be overwhelming.  Therefore it is advised to seek professional advice from a small business accountant.

Mistakes in tax filings can lead to penalties, audits, and financial strain, underscoring the necessity for meticulous financial planning and expert advice.

  1. Cyber threads and hacks

Furthermore, cyber threats loom large in the digital age. Safeguarding sensitive customer data and ensuring compliance with data protection laws to mitigate the risk of cyberattacks and breaches is crucial. 

Small businesses, often lacking robust cybersecurity measures, become prime targets for malicious actors seeking vulnerabilities to exploit.

  1. Being sued

Many small business owners worry about the risk of being sued. Litigation is big business and can get nasty, not to mention expensive. If you’re unsure of where you stand on a dispute or are worried that someone might take legal action against you, it pays to engage an experienced litigation lawyer to represent you. 

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Take a look at this article published on Forbes that discusses the top things you can do now to mitigate the risk of litigation or an expensive dispute down the road. 

Final thoughts

Staying abreast of legal developments and proactively adjusting business strategies to remain compliant and competitive is imperative.

Mitigating these legal challenges requires proactive measures. Seeking legal advice in the start up phase of your business is paramount. The time when you actually need a lawyer is usually too late! That’s why getting your house in order from the get go saves you a stitch in time, as they say.

Government initiatives and resources tailored for small businesses offer guidance and assistance. Accessing small business legal clinics, educational workshops, and online resources provided by regulatory bodies can empower entrepreneurs with knowledge and tools to navigate the legal landscape more effectively.

In conclusion, legal challenges can come from any angel and at any time.

Author: Marshall Thurlow. Marshall Thurlow is Director and Founder of Orion Marketing Pty Ltd. He is a digital marketer with expertise in SEO, website design, content marketing and project management.

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