Business Studies

WEEK 13

7 Most Common Legal Problems Businesses Face in Their Operations

PRACTICE 
Business owners in the U.S. are often faced with various legal problems that can be
crippling to their business. One of the best ways for them to circumvent these legal
problems is to identify potential problem areas early and prepare for them by having a
trusted business lawyer.

Common legal problems faced by businesses

These are the seven most common legal issues that businesses can avoid.

1.      Business formation

Every business needs to start on the right footing and this includes the structure of
the business. The wrong business structure for the type of business can have serious tax
and legal consequences.

Business structures include sole proprietorship, partnerships, LLCs, and corporations. A sole
proprietorship can leave the business owner vulnerable to personal liability. The business
structure can be changed later, but it should be set up properly from the start. Attorneys
can best advise potential business owners about which structure suits their business type
best.

2.      Licensing
Each state has different business licensing requirements and these licenses are issued
when a business is first started. Many business licenses need to be renewed annually if a
business is to remain compliant. Failure to pay these licenses can lead to penalties and
cancellations for the business.

3.      Employee and partner agreements

In the U.S. one of the most common legal problems is “wrongful termination” claims
made by employees. Contracts are essential when hiring employees because word of
mouth and handshakes are not considered binding. The same principles apply to
partnership agreements.

Employees’ contracts should stipulate their rights, roles, duties, salaries, benefits, and
contract dates. They should also mention the possible reasons that can lead to their
dismissal, and employers are required to document disciplinary actions against employees.

When a business wants to fire an underperforming employee, they should never do so

without a termination contract drafted by an attorney.
Immigration audits are randomly run by the U.S. government, so all businesses must check
on the legal status of their immigrant employees.

Overtime disputes can lead employers into unnecessary legal tiffs. Employers need to make
sure that they have clear overtime rules and to approve all overtime in advance.

Partner agreements are also vital in case the business is ever sold, split up or there are
differences. The partnership agreement must clearly state how everything will be shared.

4.      Cases of discrimination and harassment

Alleged discrimination cases can be harmful to a business and it’s up to owners to
prove that they have a fair hiring process. They should keep the resumes of applicants for
each position in case any future allegations arise. Employers must prove that they hired the
most qualified individual for the job, regardless of age, ethnicity, or gender.

Harassment comes in various forms and mostly includes sexual, race, and religion. These
should not be allowed to fester in any work environment because they can be bad for the
image of the business and carry huge legal costs.

Regular staff meetings and the creation of a culture that frowns on these two practices
should be encouraged in all business environments.

5.      Misclassification of employees

Employees must be correctly classified as far as The Federal Department of Labor is
concerned. According to the department, many businesses wrongfully classify employees as
independent contractors to avoid paying Workers’ Compensation.

All employees, except subcontractors who have their own business, must be classified
correctly otherwise businesses can face criminal charges.

6.      Copyrights, patents, and trademarks

The development of new products always needs to be researched carefully for any
existing patents or copyrights. Many companies make easy money by patiently waiting for
someone to violate their patents. These types of legal battles can drag on for years, are
messy, and cost lots of money.

Additionally, trademarks have to do with the name of a business or product that is already
owned. Before launching a business or product the names should always be researched
because even an honest mistake can cost dearly.

7.      Lawsuits by unsatisfied customers

Issues with unsatisfied customers can be avoided by businesses. They need to have a
hands-on approach and to address issues as soon as they arise. Faulty products should be
recalled and customer support plays an important role in avoiding class action lawsuits and
litigation. Some issues can be settled out of court, but if enough unsatisfied customers get
together and file a class-action lawsuit, a company stands to lose millions and the brand’s
image can be irreparably damaged.

Preventing legal issues

Even though these are the most common legal issues faced by businesses today,
others worth mentioning are tax issues, and disputes with contractors or competitors. Most
can be avoided with a proactive approach and good legal advice.