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Top 5 Legal Issues Small Businesses Encounter (Including Auto Dealerships)

Running a company is not as easy as some wannabe entrepreneurs claim.
It requires you to be in line with the latest market and legal trends. A lawsuit can easily tackle down your business operation and lead your company to liquidation. In this article we’re going to analyze some of the most common legal issues small business entrepreneurs encounter on their road to success.

Failing to conduct all legal formalities

When entrepreneurs want to incorporate their business, they can choose between several organizational types. In most cases, this choice solely depends on the benefits of each structure. For example, sole proprietorship comes with the lowest tax rates and corporations are good for entrepreneurs who expect to gain significant third-party funding. While making this choice, entrepreneurs often disregard the obligations and legal formalities that come with each business structure. For example, a corporate legal formalities include:

  • Holding shareholders and boards of directors meetings on annual basis;
  • Running corporate record books, which should also contain meeting minutes and other similar documents;
  • Documenting each shareholders’ loan;
  • Having separate bank accounts;

Disregarding some of these obligations can cause many legal problems and it can discourage prudent investors from investing their funds in your business.

Treating employees like independent contractors

Small companies need a lot of money in the first phases of their development. Many of them try to save some funds by treating their employees as independent contractors. This means that they don’t pay their unemployment and social security insurance. They also avoid paying other benefits, like health insurance or a retirement plan. If the hired individuals are doing the employee work, the Internal Revenue Service might declassify their status and assign entrepreneurs with a hefty fee.

Failing to ensure company’s intellectual property

When it comes to intellectual property, it doesn’t matter whether companies use the services of employees or independent contractors. Intellectual property of the company needs to be ensured in both cases. This can be done by signing special agreements with employees or contractors. These agreements need to:

  • Assign all rights (including the IP ones) on employees work and the products they’ve created to the company;
  • Oblige employees to help the company perfect those rights;
  • Ensure confidentiality obligations;
  • Protect both companies and employees from IP infringements caused by the third-party;

Facing Employee Injury Compensation Lawsuits

Small businesses often disregard some of the most basic OSHA regulations.
They also avoid paying the Employee Compensation, which can result in hefty fees, employee injury lawsuits and even production closing by the Occupational Health and Safety Administration. Injured employees have the right to hire a work injury lawyer and they often sue their companies for not complying with the OSHA regulations. These lawsuits often result in huge settlements and many companies file for bankruptcy because they don’t have enough money to pay the damages to the injured employees.

Hiring an overseas contractor

Hiring an overseas contractor is not illegal, but you need to be very careful when it comes to data you are sending. Companies often use offshore services in order to save more funds. In United States, companies are not allowed to send their customers’ or employees’ personal data to overseas contractors. In addition to this, entrepreneurs should be very careful when sending their company’s intellectual property overseas. For example, People’s Republic of China hasn’t signed any of the international intellectual property laws. Even countries like India, which intellectual property laws are within the mainstream, have very difficult legal procedures for enforcing your IP rights. So, when you want to outsource your company’s ‘family jewels’, choose the domestic contractors and those from countries that respect international intellectual rights and have an efficient court that deals with these matters.


Contacting professionals whenever you face legal difficulty is the best solution for every legal problem small businesses might face. Many attorneys will give you a free legal advice and you’ll be able to run your company without any worries. If someone does file a lawsuit against your company or you become the prime target of government inspectors, hire a lawyer with a proven record and hope for the best.

Views: 63

Tags: auto, business, delarships, legal, small


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