August 2022
7 Most Common Legal Issues Faced by Small Businesses
Overview
As a small business owner it is likely that you will run into numerous problems, many of which will involve legal issues. In this article we cover 7 of the most common problems that can all be avoided with the right legal advice.
Key Takeaways
- Business structure – Consult with a lawyer to select the correct business structure before you set up your business.
- Raising capital – There are different stages at which you may raise capital for your small business. Ensuring the best avenue is taken to help expand your business venture is essential and protects your legal position.
- Licences – Your small business can face many problems (including being closed down) if you do not obtain and comply with the correct licences to operate your business.
- Intellectual property – Protecting your business ideas can be one of the most essential steps you take when starting up. Proper legal registration and protection is essential.
- Website – The legal side of starting up your website requires consideration of intellectual property, licenses, user terms, and privacy policies to protect your business.
- Employment – Having an experienced business lawyer assist in the drafting of employment agreements will save your business from future disputes that may arise, including with your employees or the Fair Work Ombudsman.
- Disputes with customers – You can protect your business from disputes with customers by establishing appropriate terms and conditions, and, if a dispute arises, by establishing dispute resolution procedures.
Background
As a small business owner, it is often that the myriad of legal challenges one can face is not prepared for. Just like larger businesses, small businesses are subject to many laws, and getting caught up in the success and operations of running a business can cause business owners to unintentionally breach these laws. Facing such legal issues can cost small businesses a lot more than ever anticipated. Educating yourself on the most common legal issues that small businesses are likely to run into can help minimise these risks.
1. Choosing a Business Structure
Without the correct foundation, a building is simply at risk of collapsing. The same applies to your business, selecting the correct business structure is essential to your start-up. The business structure you select impacts your liabilities, profitability, and tax obligations.
So, what are your options? The most common include:
- Sole Proprietorship
- Partnership
- Company
- Trust
Obtaining legal advice as to the ideal structure for your business is highly recommended. Establishing your business under the wrong structure can have adverse impacts.
A sole proprietor has a personal liability to the business, meaning you and your business are one under the law. A company is a separate legal entity which will, in most cases, provide protection for the owner’s personal assets.
Remember, business structures can be changed later, but ensuring it is set up correctly can save time, money, and your business!
2. Raising Capital
The growth of your business is sometimes dependent on how much capital you can raise. Some ways small businesses raise capital include:
- Private investors
- Private funding
- Bank loans
- Seed funding
- Angel investments and venture capital
- Private equity
- Government grants
There are different stages to this process, and obtaining the fundamental knowledge of this is crucial before you procced to take it on. Engaging a lawyer who can explain these processes, requirements and what to avoid will be beneficial to your small business.
3. Licences
Would you be driving a car without a licence? The correct answer, NO.
As a small business owner, licensing your business or having the correct licences or permits (such as building licences, liquor licences or council approvals) in place is crucial. Licences commonly need to be renewed annually for the business to remain compliant.
Failure to licence your business correctly can lead to hefty fines, detrimental fees and even business closure. Hence, it is wise to consult a business lawyer with any concerns you may have with obtaining correct licences for your business.
4. Intellectual property
Did you ever think that your lightbulb moment ideas would need to be protected?
Failure to patent, trademark or copyright your products and services can allow competitors to take advantage of your intellectual property and steal customers from the business. Protecting these ideas can be the most vital thing for your business, as these may become the essence of your business. Equally, using a logo, slogan or other material that is already the subject of intellectual property rights held by another party, can make you liable for infringement.
It is important to check that names, logos, slogans, or other similar products are not already trademarked or the subject of copyright. This can be done through a search of online registers.
Either way, it’s important to sit down with a lawyer and determine what you can use and how you should protect your business.
5. Starting a Website
You may think creating a website is easy. However, from a legal perspective there is a lot more to consider than just colours and themes.
The steps to building a website include:
- Choosing your website building platform
- Picking your domain name
- Registering your domain name
- Choosing a web hosting service
- Building your website
- Creating the terms and conditions and other protections for your business
- Publishing your website
It is critical to ensure proper ownership of your website, and put in place secure payment methods, privacy policies to protect customer information, copyright, licences, and trademarks, and create your customer terms of use. Failure to comply with these can lead to your website infringing other parties’ copyright or allowing others to steal your intellectual property. Further, without proper user terms and conditions, you risk exposing your business to legal claims.
6. Employment
Sometimes from humble beginnings, there is a degree of informality when your business hires staff. This risky way of employing individuals is a very common way to expose your business to legal claims. It is essential that a valid and complying written employment agreement be used by your business. Without any sort of document to stipulate the rights, rules and terms of the employment a messy court battle can commence.
Whether this is going into partnership or hiring new employees, a signed agreement or contract must be entered into. The information which should be set out in these documents, includes but is not limited to:
- Employer and employee:
- Responsibilities;
- Roles; and
- Rights
- Benefits or entitlements
- Salary/payment
- Contract date
- Potential reasons for termination
- Restraint clauses/periods
Employment law is complex, and speaking with a lawyer about the ins and outs of your small business can cover all basis with solid employment agreements to avoid legal claims
7. Disputes with customers
As a small business, your customers’ experience should be a positive one. The success of small businesses relies heavily on their regular customer basis, good word of mouth and reputation. However, it is expected that there may be some unhappy customers. In this instance, dealing with the issue as soon as they arise is key. The following are examples of common issues:
- Terms and conditions – It is wise to ensure that your business is being transparent with its terms and conditions, which set the expectations of customers, for example, whether a refund is available in certain circumstances.
- Dispute resolution – Another important aspect for your small business is preparing for disputes by arranging dispute resolution mechanisms to ensure customers complaints are dealt with in an appropriate manner.
- Public liability – It is important that the proper insurance is in place for your business to protect you in circumstances where customers are injured at your premises, or in relation to product or services liability.
- Litigation – A customer may decide to take legal action against you and engaging a litigation lawyer experienced in small business claims is recommended.
Contact Us
We are experts in corporate and commercial law. If you are dealing with any business issues, we would be happy to assist and provide you with specific advice on the best course of action available. For further information, please call us on (02) 9189 5288.
Nicole Sarraf and Craig Higginbotham
19 August 2022
