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5 Legal Issues You May Face as a Small Business Owner

Starting and running a small business comes with a plethora of challenges, not least of which are legal issues and considerations you have likely never faced before.

5 Legal Issues You May Face as a Small Business Owner

Here are five such issues that you may have to face as a business owner.

Legal Structure

One of the first and most important decisions you will have to make when starting a business is to decide on the legal status and structure of your company.

The most used legal business structures used are:

  • Sole Proprietorship
  • Limited Partnership
  • Limited Liability Company (LLC)
  • C Corporation
  • S Corporation

Your chosen legal structure will affect the way you run your business, pay your taxes, and the extent of personal liability in the event of a lawsuit.

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Because founders often forgo legal consultation at the beginning of their business journey, they often find themselves incurring higher taxes and significant liabilities that otherwise could have been avoided.

With the help of a small business attorney, you will be able to select the best possible business structure for you.

Fraudulent Trading

One of the primary benefits of setting up a limited company is a limited liability; the business is its own legal entity so directors and shareholders cannot be pursued personally for company debts.

When it comes to criminal activity such as fraud, however, business owners usually cannot hide behind their companies’ limited structure. In these cases, the separation of the company and individual may be disregarded.

If a company is struggling financially, and the director continues to trade when they knew or should have been aware that the company was insolvent, then this is wrongful trading.

With civil offenses such as these, a typical business attorney may not be equipped to handle the legal proceedings, in which case a criminal defense attorney, such as Pringle Chivers Sparks Teskey, may be required.

Employee Misclassification

Before an employee can become an integrated member of your team, you must establish a legally binding contract defining their status. (Full-time, part-time, independent contractors.)

The misclassification of employees as independent contractors especially is a subject that the Federal Department of Labor takes very seriously.

The classification of your employees will affect the terms of their employment contract, job details and requirements, and employee entitlements such as benefits, overtime, and minimum wage.

Employee Termination

Hiring the wrong person can happen to anyone, even business owners who have been in the game for years sometimes hire the wrong people.

Perhaps they are not as qualified as you were led to believe, or they just do not fit in with the team dynamic. Whatever the reason, sometimes the only thing left to do is let an employee go.

It is prudent, therefore, to take the right precautions before terminating anyone, to minimize any legal repercussions.

Make sure the terms of employment are spelled out in your employee handbook and ensure that any disciplinary actions amongst your staff are documented and stored. If a disgruntled employee tries to claim wrongful termination you will need the evidence to prove them wrong.

You may want to consult with an employment law solicitor as well if you have any uncertainties.


Licensing is one of the most common legal issues small business owners encounter. As such, your business must be in line with government restrictions for business licensing.

Failure to license your business properly could result in unnecessary fees, or even cause your business to come to a forced halt.


The cost of proper licenses will vary depending on where you operate from, but the need to have one is a constant throughout the country.


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