4 Ways Small Business Owners Can Manage Legal Risk

If business has been affected by stressful and costly litigation, you are not alone.  Unfortunately, an estimated 53% of small businesses contend with legal action every year. Owners taken to court pay between $3,000 and $150,000 in legal fees according to a survey by the Small Business Administration.Though the threat of legal action cannot be eliminated, small businesses can take steps to protect their business assets, reputation and personal well-being against some legal actions.

Common legal complaints small businesses face

Based on court records and independent surveys, small businesses are often sued by employees or customers. 

Employment matters

Legal issues can be brought by employees or a government agency. For example, a terminated employee may sue for lost wages because they feel targeted for filing complaints. Should your company not have the appropriate policies in place to address employment stipulations like performance, termination, non-solicitation clauses or whistleblowing, that misstep could leave your business open to legal action and paying hefty damages. In addition, employment law varies by state. Small businesses can face legal action if you do not follow the laws of employment in your state.

Customer complaints

Owners know that customer service is paramount to business success, but sometimes complaints can rise to the level of legal action in small claims court. Depending on your state, a successful claim could lead to your business paying thousands of dollars in damages.

Common reasons customers might sue a business include:

• Slip-and-fall accidents on company property.
• Discrimination.
• Deceptive pricing.
• False advertising.

Avoid these types of issues, by being aware of consumer protection laws enforced by the Federal Trade Commission (FTC).

Additional legal risks for small businesses

Small business owners can run into issues without properly incorporating. If your business is sued, your personal property and assets could be on the line. Also, as your business takes on investment from shareholders, if the business formation is not set up correctly, this could lead to litigation in the event of a death, sale or closure. Similarly, breach of contract is a common legal issue that can be minimized with the advice of a lawyer specializing in contract law.

4 Ways to manage legal risk to your business

Though every legal matter is different, there are smart ways to manage the risks associated with being sued by an employee, customer, shareholder or vendor. By staying informed on the laws regarding employee safety and consumer protection, you can ensure that your company is legally compliant.

Here are the top four actions for owners to consider.

1. Protect your business financially with business insurance such as general liability, commercial auto or property insurance.
2. Provide employees with information on their rights and your expectations in the form of workplace posters and an employee handbook.
3. Follow the advertising and marketing guidelines from FTC.
4. Seek help from a business lawyer to review company policies, contracts and any other critical documents.

Categorised in: Starting a Business in Arizona

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