In general, small businesses are often a labor of love for their owners. They require a massive commitment of time and energy to build, nurture, and grow, but along the way, small businesses can get caught in a wide variety of legal quagmires. Understanding these risks, and knowing how to prepare for and mitigate them, is key to avoiding time- and resource-consuming legal disputes that can hinder or even ruin a business. Legal risks of small businesses could fit into seven very broad categories:
1. Maintaining a Safe and Secure Premises: Brick and mortar businesses may encounter claims from customers or others injured by an unsafe condition on business property, such as a broken step or a spilled substance on the ground. Regular maintenance of the premises, along with liability insurance, can mitigate this risk.
2. Consumer Complaints: Businesses that do not promptly respond to customer complaints about products or services may encounter legal claims. Customers should receive prompt responses to reasonable complaints or concerns. All advertising and marketing materials must accurately portray the company’s products or services in order to avoid deceptive trade practice claims. Robust quality control may help a business avoid putting faulty or defective products into the marketplace. This can help companies avoid product liability claims.
3. Brands and Trade Names: A business should thoroughly search registered trademarks and service marks, as well as business names already in use, before committing resources to a particular name or brand. Disputes over the rights to a trademark can completely derail a business.
4. Read the Contracts: Business owners and officers should carefully review all contracts before signing them. Contracts with suppliers, distributors, landlords, and service providers may have provisions that will obligate a business to something an owner or officer does not expect. Once the contract is signed, the business is obligated to follow it, unless the agreement or the law carve out exceptions.
5. Keep the Peace Among the Owners: Disputes between business owners account for a large number of the lawsuits that encumber small businesses. Owners may disagree on compensation or major business decisions, or an owner may want to leave the company. Well written bylaws, shareholder agreements, and buy-sell agreements can facilitate the process of resolving disputes between owners.
6. Watch the Securities: Businesses may seek additional investors to raise capital. State and federal securities laws, among many provisions, require businesses to make certain disclosures to prospective investors. Neglecting these rules can be disastrous.
7. Employee Management: Federal state, and local laws protect employees of many companies by prohibiting discrimination, requiring reasonable accommodations for employees with disabilities, and regulating salary and benefits. A good understanding of employment laws, combined with a well-defined set of employment policies, can help businesses avoid legal disputes.
8. (Bonus) What if a legal dispute occurs anyway? In order to keep a disagreement from turning into full-blown litigation, try negotiating a resolution with the other party. Think of it as an opportunity to resolve conflict, avoid unnecessary expenses, and maintain good will. If this does not succeed, consider mediation, where a neutral third party will help you reach a settlement. An arbitrator can hear both sides of the dispute and make a recommendation. If the parties agree, the arbitrator’s ruling can be binding on both parties, thus avoiding potentially lengthy litigation.
You may contact our law firm in order to seek guidance through the various legal pitfalls of the business world. We strive to prevent complications before they occur.