Common Legal Issues Small Businesses Face

Legal Article

Common Legal Issues Small Businesses Face

Owning your own business can be a very financially and personally rewarding experience. However, while there are many benefits to running your own business, there are countless legal issues that could derail your company both with your customer base and the surrounding business community. Below is a list of the most common legal issues small businesses face and how to mitigate these disputes.


Licensing your products or services out to other businesses is one of the most common causes of legal issues. To mitigate this occurrence, ensure that you are meeting your state’s specific requirements for this activity. The reason for this is that if you do not follow the specific state guidelines, you may have to pay additional fees that are easily avoidable. While the initial cost of properly licensing your product may seem steep, it is essential that you go through this process. One final note is that licensing fees are different for each state.

Employee Termination

While every business terminates employees, small businesses historically have a higher turnover rate as they do not have human resources departments dedicated to screening applicants. Thus, many small businesses hire someone they believe has the necessary qualifications and personal demeanor to help their company. However, the owner of the business quickly realizes that the new hire does not fit with the existing team or is not performing highly enough to justify keeping this person in their position.

There are a few important steps every small business owner should take to avoid wrongful termination lawsuits. First, create an employee manual and be very clear on the type of conduct that could lead to termination. Second, hire an attorney who can draft up an editable contract. Thus, when you do have to let an employee go, you can state the exact reason for your decision.  

Business Entity or Structure

It may be easy to create the name for your dream business or decide on what products or services you are going to offer. However, choosing the proper business structure is much more difficult. How you legally register your business largely depends on who is involved and the type of business you want. Furthermore, the business structure you choose can open you up to personal liability. Additionally, the specific business structure you choose to utilize will also decide your taxes.

Intellectual Property

Protecting intellectual property is an essential part of running a successful small business. This is true now more than ever before as intellectual property theft has become extremely common as the online marketplace continues to expand. All people have to do is go to your website and do basic research on your target audience to see if copying your invention is worth their time. This new type of intellectual property theft is much more common in small businesses as the thieves believe that a smaller company may not find out about the theft or may not have the resources to bring forth a formal lawsuit.

Thus, to mitigate the effects of intellectual property theft on your business, it is vital that you register a trademark, apply for a patent or copyright, and implement organizational safeguards to protect your business secrets. By taking these preventative measures, if you ever need to defend your product or service in court, you will already have the legal means in place to quickly resolve the issue. This is true not only for protecting against others stealing your product but also ensures that another company cannot falsely accuse you of intellectual property theft.


Another common mistake small business owners make is misclassifying employees. One example of this is when small businesses say that full-time employees are actually independent contractors. The reason why misclassification matters are that an independent contractor has different obligations and rights relating to taxation and benefits when compared to a normal employee. Thus, if you do classify someone working for you as an independent contract, make sure you follow state guidelines to ensure that this is their correct classification or risk major legal troubles.

Shareholders’ Agreement

For many corporations, the most important sections of the state-specific corporate laws deal with establishing the activities and conduct that shareholders and directors must follow or are prohibited from engaging in. Aside from laying out allowed conduct from shareholders and directors early in the company’s life, another benefit of these state laws is that they allow the owner or partners of a company to create specific bylaws that cover important topics such as company control, ownership, and contractual relationships between shareholders. To avoid litigation, you should ensure that your shareholder agreement touches on each of these topics.

Overtime Disputes

One important tip is to ensure that you clearly define your overtime rules and approve all requests in advance. This saves you from legal issues while also allowing you to more easily keep track of your company finances.


One of the most easily avoided yet common lawsuits small businesses face regards discrimination. This is true whether the person claiming the discrimination originated because of their sex, race, age, or religion. While these are serious claims, the majority of these lawsuits are baseless. Thus, if a baseless discrimination lawsuit is brought against your business, immediately contact a lawyer to review the issues.


Similar to discrimination, harassment is one of the most serious claims that an employee can bring against your business. There are a few important steps a small business can take to prevent workplace harassment. These include hiring high-quality workers and training your staff on how to treat each other with respect. Finally, you should promote a work environment that pushes back against hostile and discriminatory behavior.  


Bringing forth litigation is one of the few things on this list that small businesses owners control entirely. Thus, our attorneys advise not to rush into a lawsuit as this process is both costly and time-consuming. In most cases, if available to you, try to negotiate a dispute outside of court before initiating a formal lawsuit.

Final Thoughts

The issues above are the most common causes of small business lawsuits. However, there are many more legal issues that small businesses face each day. Furthermore, no matter which of these issues you may experience, you could experience detrimental financial effects. To avoid these possibilities, it is vital to speak with an attorney that has experience working with small businesses. Each one of these lawsuits could lead to financial ruin.

With over twenty years of experience working with small businesses, the attorneys at Antonoplos & Associates are able to assist clients with any issues they may face throughout DC, Maryland, and Virginia.  

Contact Our DC Law Office for More Information

Finally, for more on legal issues small business face, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding business law, check out our blog.