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What Every Business Owner Needs to Know About Legal Issues


                                                                                Photo by Tingey Injury Law Firm on Unsplash


How Do I Prevent Legal Issues From Destroying My Business?

Do legal issues in your business or just the threat of them seem daunting and complex to you in your business? Or has a past legal issue made you nervous about things in the future? 

They absolutely make me nervous because according to Business litigation impacts 36% to 53% of small businesses annually. Roughly 45% of small companies are in litigation. 90% of all companies experience a lawsuit at some point. Small companies face 12 million contract lawsuits annually. So, we need to be prepared!

I have done a lot of research on the necessary things that need to be done and then next level items too. I prefer to simplify this complex subject down by separating legal matters into three simple categories. 

  1. Setting up the business properly. 
  2. Doing business the “right” way.
  3. Protecting your business from “Bad Characters.”

These are vital aspects to protect your business from potential risks and liabilities. So, whether you're a seasoned entrepreneur with a thriving SMB or just starting out, understanding the legal landscape is crucial for safeguarding your company's future. 

However, I believe you don’t have to wonder if you are doing everything right and worry about when a legal issue will come along to sink your business. So, in this blog, we'll explore some key legal considerations that every business owner should be aware of to protect their business from lawsuits and potential financial ruin.



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Set Up Your Business Properly

The technical business terminology for this is called “Forming the Proper Business Entity.”

Choosing the appropriate legal structure for your business is the first step in protecting it from legal liabilities. 

Different business entities, such as sole proprietorships, partnerships, limited liability companies (LLCs), and corporations, offer varying levels of liability protection and tax benefits. You can learn all about these different entities through your own research but depending on the complexity and plan for your business I would recommend consulting with a legal professional or business advisor who can help you determine which structure best suits your business needs and goals. 

If you don’t select the right entity then your personal assets could be in jeopardy from business debts and lawsuits. So, to provide you and your family with peace of mind and financial security make sure you set up your business properly. Also, your business could start out as a Sole Proprietorship but then need to move into an Limited Liability Corporation (LLC) at some point. 

So, learn the decision milestones that need to happen for the progression of your business and work with a legal professional or business advisor to get this right.

Do Business the “Right” Way

When I refer to doing business the “right” way this is what I mean. Treat others the way you would love to be treated.

If we respect and look out for others then we will not have to worry about winding up in litigation over a gray area of a contract, etc. I understand that we have to ensure the health of our business but here’s an example. If you have to decide between forgoing a significant amount of revenue to avoid litigation then, in my opinion, this will be better. You will avoid legal fees that may cost you more than you lose and it will protect your reputation which is much more valuable in the long run. 

So, in this category I want to address three areas that we can do business the way we want others to do business with us, employment law, Information Privacy and Advertising.

1. Employment Law

Employment law simply governs various aspects of the employer-employee relationship. For example, hiring practices, workplace conditions, wages, benefits, and termination procedures. 

These can and do change frequently so stay in tune with the federal, state, and local employment laws. Subscribe to email newsletters and social media channels or better yet have an HR or legal team member do this for you, if possible. Some of the items that change a lot are anti-discrimination laws, minimum wage requirements, overtime pay, and employee rights. 

I talk a lot about protecting your “power source” of your business, your employees. So, fair employment practices like, treating all employees fairly and consistently, regardless of their race, gender, age, religion, disability, or other protected characteristics. Also, avoiding discriminatory practices in hiring, promotion, compensation, and termination decisions. Lastly, establishing clear policies and procedures, in an Employee Handbook, for addressing workplace harassment, discrimination, and retaliation, and providing training to managers and employees on all of these issues. 

Creating a written document of how you will do business with your employees will keep you out of court, if you follow it. This is very valuable and worth the time and resources to complete it. 

2. Information Privacy

In today's digital age, protecting customer data and information privacy is paramount for businesses to maintain trust and credibility with their clients and stakeholders. A formal privacy policy outlines how your company collects, uses, stores, and protects sensitive information, such as customer data, demographic information, and online activity. 

To safeguard information privacy and mitigate the risk of data breaches or privacy violations, consider these two processes.

First, develop a comprehensive privacy policy by creating a written privacy policy that clearly communicates your company's practices regarding data collection, usage, sharing, and security.

Include details about the types of information collected, purposes of data processing, third-party disclosures, and procedures for handling data breaches or customer inquiries. Ensure that your privacy policy complies with applicable privacy laws and regulations, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA). Place this on the footer of your website and in all data collection forms. 

Second, implement data protection measures with robust data security measures to safeguard sensitive information from unauthorized access, disclosure, or misuse. Use encryption, firewalls, access controls, and secure transmission protocols to protect data stored on your servers, networks, and cloud-based systems. 

Third, train employees on data security best practices and protocols for handling and processing confidential information securely. Regularly audit and assess your data protection measures to identify and address any vulnerabilities or compliance gaps. These training sessions can be very boring but very much needed!

3. Advertising

Advertising is a powerful tool for promoting your products or services and attracting customers, but it's essential to ensure that your marketing and advertising practices comply with applicable laws and regulations. 

Here are some tips to avoid legal issues related to your business’ advertising.

Be truthful and transparent. In other words, make sure your advertising and marketing materials are accurate, truthful, and not misleading. Don’t try to cover needed details up or embellish results just to get the sale. Disclose any material information or limitations that may affect consumers' purchasing decisions, such as pricing, availability, or product features.

Comply with advertising laws and regulations. Every industry has different regulations so make sure you know them! Also, stay “plugged into” the Federal Trade Commission (FTC) guidelines, truth-in-advertising standards, and industry-specific regulations. 

Ensure that your advertising practices comply with requirements. If you have any questions about whether a certain advertising strategy would be legal or not then don’t do it, to be safe. Or, consult with legal counsel or advertising experts to review your marketing campaigns and ensure compliance with all laws and regulations. This is a great way to ruin your business’ reputation extremely fast and it’s not worth the risk! 


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Protecting Your Business From “Bad Characters”

Protect Your Intellectual Property Rights

Intellectual property (IP) assets, such as trademarks, copyrights, patents, and trade secrets, are valuable assets that differentiate your business from competitors and contribute to its success. So, protecting your IP rights is crucial for maintaining your competitive edge and preventing unauthorized use or infringement by others. 

Consider registering your trademarks and copyrights with the appropriate government authorities to establish legal ownership and enforceability. Implementing confidentiality agreements and security measures to safeguard trade secrets can also help protect sensitive business information from unauthorized disclosure or theft. 

If you stay proactive in protecting your intellectual property, you can prevent costly legal battles and preserve your business's reputation and market position.

Implement Clear Contracts and Agreements

Clear and comprehensive contracts are essential for establishing the terms and conditions of your business relationships and minimizing the risk of disputes and litigation. Don’t skip over this because gone are the days of verbal and handwritten contracts no matter how close you are with someone. You just never know what someone is capable of doing to your business.

So, whether you're entering into agreements with customers, vendors, employees, or partners, having written contracts that outline the rights, obligations, and responsibilities of each party can help prevent misunderstandings and legal conflicts down the line.

In your contracts, be sure to include provisions for dispute resolution, termination clauses, and confidentiality agreements where appropriate. It’s always a good practice to regularly review and update your contracts to ensure they remain relevant and enforceable in changing business environments. 


Last but not least, business insurance is also a vital component of protecting your business from unforeseen risks and liabilities. Especially from “Bad Characters” who are trying to do harm to your business. 

Insurance is meant to serve as a safety net that helps mitigate financial losses and legal expenses resulting from accidents, theft, property damage, or errors and omissions. By investing in the right insurance coverage, you can safeguard your business assets, mitigate potential liabilities, and ensure continuity of operations in the face of unexpected events. 

Be sure that you and your team assess your business risks and consult with insurance professionals to determine the appropriate coverage options for your specific needs and industry requirements. Remember that insurance is not only a legal requirement in many cases but also a strategic investment in protecting your business's financial stability and long-term success.

Here’s a “real world” example. At one of my former organizations I witnessed, firsthand, how important insurance can be. Our CFO and IT Department just purchased Cyber Theft Insurance only several weeks before it actually happened to us. It saved our organization hundreds of thousands of dollars, close to a million dollars actually. Something like this can sink an SMB in a hurry so don’t take it lightly!

Action Steps

I certainly know that navigating the legal landscape can be challenging, but it's essential for protecting your business. So, know the threats, count the cost to your business then work with a trusted legal advisor of some kind. If cost is an issue with hiring a legal advisor. There are great fractional legal advisors that can fit your budget at any stage of your business. Let me know if you need some recommendations. 

Finally, remember that investing in legal protection now can save you time, money, and stress in the long run, allowing you to focus on growing your business with confidence and with peace of mind!

Enjoy the process.

Grow more. Risk Less


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