Common Legal Issues in Business and How to Address Them

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According to The Zebra [1], 90% of all businesses experience a lawsuit at some point in their lifespan. That’s ‘virtually’ every business ever. Whether you’re a big or small business owner, you must expect it.

So many things can go wrong legally when running a business, and some of these issues can damage your business relationships, sever your reputation, eat into your finances, waste your time, and ultimately cost you your business.

Businesses must learn and understand how to avoid common legal issues to be able to focus on core business and ensure sustainable growth and success.

What are the Common Business Legal Issues?

Below is a list of legal issues big and small businesses often get caught in by mistake or on purpose.

1. Contract Disputes

Contract disputes can arise when there is a disagreement between parties regarding the terms, performance, or interpretation of a contract. When contractual agreements are breached, the aggrieved party can take legal action, and your business could face issues that will cost you in the long run.

2. Employment Law Violations

Employment law violations can include misclassifying employees as independent contractors, failing to pay minimum wages, or engaging in discriminatory practices. Employment violations are some of the most common legal issues small businesses face.

Understand that employment law violations can arise even with prospective employees. These lawsuits are filed by workers who feel like they were discriminated against during the termination of their jobs or by job candidates claiming that their rejection was based on a grudge or other unfair reasons.

3. Intellectual Property Infringement

Intellectual property (IP) infringement occurs when you use someone else’s protected IP, such as trademarks, copyrights, or patents, without their permission. It is important to protect your IP and respect the IP rights of others. IP infringements can even be as trivial as knowingly using a logo that is similar to a trademarked logo of another company.

4. Regulatory Compliance

Regulatory compliance involves adhering to laws and regulations specific to your state or industry, such as licensing requirements, safety standards, or data protection regulations. Failure to comply can lead to legal problems like penalties, fines, or even business shutdowns.

5. Non-Compliance to Tax Laws

Tax compliance is crucial for businesses to avoid penalties, audits, and legal issues. This includes proper record-keeping, timely filing of tax returns, and accurate reporting of income and expenses. For example, failing to report income accurately or neglecting to pay taxes on time can lead a business to lawsuits.

6. Business Structure and Governance

Choosing the appropriate business structure, such as a corporation or LLC, and complying with requirements for corporate governance is important. Failure to do so can lead to personal liability for business debts or piercing the corporate veil.

For instance, if you fail to maintain separate bank accounts for personal and business finances, your personal assets may be at risk if there’s a lawsuit against the business.

7. Consumer Protection

You must adhere to consumer protection laws and regulations to ensure fair and ethical practices. This includes providing accurate product information, honoring warranties, and avoiding deceptive marketing practices. These laws exist to protect the consumer from deceptive marketing strategies.

8. Environmental Compliance

Businesses must comply with environmental regulations, including proper waste disposal, pollution control, and adherence to environmental permits.

While many businesses may knowingly violate these laws, so many small businesses are unknowingly doing it. However, the consequences are the same regardless of that. You need to work with a business attorney to help you avoid legal disputes and set you on the right path.

 How to Protect Your Business From Legal Issues

Protecting your business from legal issues is crucial for its long-term success. Here are some key measures you can take to mitigate legal risks:

  • Contact a Business Lawyer: It’s always a good business tip to have a legal team or work with external legal experts who are familiar with business law on your side. They can help you understand legal requirements, draft contracts, and provide guidance on compliance or misclassification issues.
  • Maintain the Right Business Structure: There are different types of business structures, including corporations, partnerships, sole proprietorships, or LLCs. Comply with all legal requirements for your chosen structure and you can avoid some legal matters.
  • Educate Yourself on Relevant Laws: Stay informed about laws and regulations that pertain to your industry, such as labor laws, tax regulations, and consumer protection laws. Also, update yourself on the legal issues that small businesses face and strive to avoid them.
  • Draft and Review Contracts Carefully: The legal implications of not adhering to contracts can be detrimental to your success and business goals. Create well-drafted contracts for your business relationships with customers, suppliers, and partners.
  • Register Your Intellectual Property and Protect it: Identify and protect your intellectual property assets, such as trademarks, copyrights, and patents. Register them with the appropriate authorities to establish legal rights and prevent infringement by others.
  • Maintain Accurate Financial Records: Tax and financial inaccuracies are some of the most common legal problems faced by companies. Ensure to keep detailed and accurate financial records to ensure compliance with tax laws and regulations.
  • Implement Employment Best Practices: Hire employees without infringing on their rights. Don’t take away the independence of the worker and don’t enforce harsh laws. Make the workplace habitable and friendly. Work with an experienced HR and compliance team familiar with all the regulations during the hiring process.
  • Obtain Business Insurance Coverage: Consider appropriate insurance policies to protect your business from potential risks like general liability insurance, professional liability insurance, and workers’ compensation insurance.

You can help your business become more solid in the face of the law by following the guidelines above. However, business dealings are not without loopholes and surprises, which is why it’s crucial to have an experienced business lawyer guiding and representing you when the need arises.

FAQs

What are 5 possible problems that could occur in a contract situation?

  • Ambiguous or vague terms that lead to disagreements over interpretation
  • Breach of contract, where one party fails to fulfill their obligations
  • Failure to include essential terms or clauses, leaving gaps in the agreement
  • Misrepresentation or fraud in the formation of the contract
  • Disputes over the validity or enforceability of the contract due to legal or procedural issues.

What consumer protection laws should businesses be aware of?

Businesses should be aware of several consumer protection laws, including the Fair Credit Reporting Act (FCRA), the Consumer Product Safety Act (CPSA), and the Federal Trade Commission Act (FTCA). Additionally, businesses should be familiar with state-specific consumer protection laws that may exist in their operating jurisdictions.

When should a business seek legal advice or representation?

It is advisable to seek legal counsel proactively to mitigate risks. Attorneys can help identify potential legal issues, ensure compliance with laws and regulations, draft and review contracts, and provide guidance on best practices.

How can businesses handle legal disputes and litigation effectively?

To handle legal disputes and litigation effectively, businesses can:

  • Consult with an attorney experienced in the relevant area of law.
  • Gather and preserve relevant documents and evidence.
  • Explore alternative dispute resolution methods, such as mediation or arbitration.
  • Develop a strong legal strategy and maintain open communication with legal counsel.
  • Consider potential settlement options but be prepared to litigate if necessary.
  • Adhere to court procedures and deadlines.
  • Prioritize maintaining professional reputation and relationships throughout the process.