5 Legal Issues That Could Sink Your Business

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By Tony Crighton

Owning a business comes with many rewards, but it also carries its fair share of troubles and issues. Of all the issues that a business owner may face, perhaps none are more problematic than issues of a legal nature. This is perhaps because legal issues have the ability to easily kill a business, and depending on the nature of the issue, can affect the business owner in their personal capacity as well.

Laws are obviously put in place for the better and proper functioning of society, and this is also the case regarding laws that govern business activities. Abide by these laws and a business may freely go about its activities uninhibited. Break them and the business and its owners are likely to get an arm of the law looking into their business affairs, and very possibly sanctioning the business in one way or another.

The following are five potential legal issues that every business owner should be aware of:

Employment laws

Even the individual who starts out as a one-person business may eventually end up employing additional people as the business grows. Once this happens, the business has the added responsibility of ensuring everything regarding its relationship with its employees is handled above board and in line with any and all tenets of the law.

From number of working hours and work environment to time off and dismissals, there likely is a law that regulates these actions. It is up to the business owner to ensure he or she is aware of whatever these laws might be, and to ensure their business is not in violation of them. Ignorance of the law is no excuse.

Whether you have one employee or one hundred, any labor laws you violate could potentially land your business in trouble. As a matter of fact, if you violate a labor law, the more employees you have, the more severe the penalties may be.

Ethics laws

Ethics laws are arguably some of the more easier laws a business may unwittingly run afoul of without realizing it is doing so. This is because ethics can be a “grey” area—what might be considered ethical to some may be considered unethical by others. If a business owner does not consider a business-related issue to be unethical, he or she may continue operating in such matter, when the law clearly thinks and says otherwise. And as the law is no respecter of persons, the person who conducts any unethical activity prohibited by law will likely be punished if caught.

Within the context of a business, ethics can apply to practically every functional business area: finance, human resources, sales and marketing, contractual agreements, and much more. Thus, it’s easy to see how a business easily can run afoul of an ethics law without knowing it.

One example of an unethical business practice is price fixing. Three local bakeries, for instance, may jointly decide on charging the same price for the bread they sell. A company ordinarily determines the price of its products or services, but when a number of companies collude to “fix” the price of a product they all sell, such that they will no longer be competing with each other on price, the government sees this as reducing competition in the market and ultimately not being in the best interest of the consumer. This collusion is seen as unethical and is why there are laws against price fixing.

If a business violates ethical laws put in place by the government, it may simply be slapped with a fine or some other penalty for which it can easily recover from. However, other types of ethics violations may see the repercussions play out in the public space. In this age of social media and instant access to information, the credibility of a business can suffer in the eyes of its customers or with the general public that may refuse to do business with the company in question. This type of “punishment” can often be much more difficult to recover from—all the more reason for a business to be careful about ethical issues.

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Customer protection laws

Customer relationships are often one of the most important factors affecting the success of a business. Yet, these relationships often can be delicate and fraught with difficulties. It is perhaps for this reason, and more, that laws were put in place to regulate and manage the relationships between consumers and businesses.

More often than not, laws are more likely to be on the side of the customer than the business. These laws are often designed to protect consumers from the unfair, and even abusive practices, of some businesses. Some of the customer protection laws that exist today cover a wide range of topics, including privacy rights, product liability, misrepresentation, and unfair business practices.

Just like any of the aforementioned areas of law, violation of consumer laws can have a devastating impact on a business, ranging from large fines being slapped against it to having its business license suspended, as well as individual or even class action lawsuits.

Intellectual property laws

In this day and age where the vast majority of businesses have some type and form of digital footprint, there is an increased risk of unknowingly violating an intellectual property law. Intellectual property laws are those laws that are designed to protect the intangible or “intellectual” creations of other people, and include things like music, literature, symbols, content, designs, and images.

One of the easiest ways in which an intellectual property law might be violated is by using a copyrighted work on a business website, such as an image or logo. The risk is increased when a company outsources the work of maintaining its digital profile and may not be fully aware of what a freelancer is doing.

Immigration audits

We live in a very mobile world, so it’s very likely a business will get job applications from applicants outside the country. Businesses should be aware there are laws in place regulating the employment of non-citizens or non-permanent residents of the United States, and violation of such laws often carry stiff penalties.

The U.S. government may conduct surprise immigration audits and can impose large fines on companies found to be in violation of immigration-related laws. The onus, therefore, rests on the business owner to ensure its employees have the legal right to work in the country.


In addition to the areas mentioned, there are numerous other legal issues a small business could be faced with related to tax, competition, licensing, and more. It is important to be proactive in knowing what the laws are and how violating them could affect your business.

RELATED: Five Ways Your Business May Be Violating Employment Law

About the Author

Post by: Tony Crighton

Tony Crighton is a practicing business attorney at the law firm of Small Business Attorney NYC, who are specialists in all legal matters related to business law. He has been a practicing attorney for over 15 years and has a diverse and broad range of experience.

Company: Small Business Attorney NYC
Website: www.smallbusinessattorneynyc.com
Connect with me on Facebook, Twitter, and LinkedIn.

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