Legal issues in business commonly include disputes over business structure,employment law, contracts, data protection, and intellectual property, and they can be time-consuming and costly, especially for small business owners who may not have the funds for adequate legal representation. The more you understand these common legal risks, the more you can do to avoid them and prepare your business for them.
Being caught up in a legal issue can also damage your business’s reputation, especially if it becomes publicised, so it’s imperative that you ensure your business is above board and that you take legal issues very seriously. For UK business owners, this means being ready not only for claims made against your business, but also for action you may need to take yourself, across areas such as consumer rights, tax obligations, licences, commercial property, and industry-specific regulations.
What Are The Main Legal Issues In Business?
Businesses in the UK have a range of legal responsibilities covering everything from how the business is structured to how it treats employees, customers and suppliers. Understanding the main legal issues early can help business owners reduce the risk of disputes, financial penalties and disruption to their operations.
Common Legal Issues Businesses Face
- Business structure: Choosing whether to operate as a sole trader, partnership or limited company affects areas such as personal liability, tax responsibilities and reporting requirements.
- Employment law: Employers need to follow rules covering employment contracts, pay, working hours, discrimination, health and safety, disciplinary procedures and dismissal.
- Contracts: Poorly written agreements, unclear payment terms, missed deadlines or disputes over what was promised can lead to costly disagreements with customers, suppliers or other businesses.
- Data protection: Businesses that collect or use personal information must comply with UK data protection law, including the UK GDPR and Data Protection Act 2018, and take appropriate steps to keep that information secure.
- Intellectual property: Trade marks, copyright, designs and patents can help protect a business’s name, branding, creative work, products and inventions from unauthorised use.
Other legal issues can arise around consumer rights, tax, licences, commercial property, debt recovery and industry-specific regulations, so meeting these legal requirements is an ongoing process of compliance rather than a one-time task, and failing to secure the necessary licences can lead to significant fines or even business closure.
Examples of Legal Issues For Businesses
Legal issues in business can arise when a business fails to meet its legal obligations, but they can also result from disputes over contracts, employment, intellectual property or other commercial relationships. The exact legal requirements that apply will depend on the type of business, its activities and the people it deals with.
One key example of the legal issues you’ll need to be aware of in business is employment law. Employers need to understand the main labour and employment rules that apply to their workforce, as well as their health and safety responsibilities, and specialist legal advice can be useful where issues are complex. You should also choose an appropriate business structure and understand the legal and tax obligations that come with it. Ethical issues do not necessarily have a legal base. They are based on human ethics, values, and the concept of right and wrong. Ethical issues may arise in your business if you cut corners and do not treat your employees or customers with respect. It’s possible that ethical issues can become legal issues in some circumstances.
For example, as a small business, protecting intellectual property can be important, but different types of intellectual property are protected in different ways. Copyright protection arises automatically for qualifying original works, while trade marks, patents and registered designs generally require an application if you want those registered rights. An idea by itself is not usually protected by copyright, so businesses should identify which intellectual property rights actually apply before relying on them.
While the legal issues that you’re most likely to face will depend on what industry you’re in, these are some of the most common legal issues facing the majority of businesses throughout the UK today:
Not Being Registered
Not every business in the UK has to register with HMRC in the same way or at the moment it starts trading. For example, a sole trader can start trading before registering for Self Assessment, although they generally need to register as a sole trader if their gross trading income exceeds £1,000 in a tax year. Limited companies are incorporated through Companies House and have separate Corporation Tax responsibilities with HMRC, while other registrations such as VAT or PAYE depend on the circumstances.
During business formation, ensure that you decide whether operating as a sole trader, a limited liability partnership, or a limited company suits your business objectives best, and complete the registrations that apply. These structures have different legal implications; for example, partners in an ordinary business partnership can be personally responsible for business debts, while an LLP and a limited company provide separate legal structures with different liability rules. Choosing the right business structure at the beginning can make it easier to meet your legal, tax and reporting obligations as the business develops.
Employee Issues
Employee matters are among the common legal issues faced by businesses. Clear policies and fair procedures can help employers meet their obligations and reduce the risk of costly disputes. Dismissing an employee can involve statutory, contractual and procedural requirements, so employers should make sure they have a potentially fair reason where required and follow an appropriate process. Some common employee-related legal issues include:
Employee Classification
Ensure that the employment status of the people working for you is accurate to prevent legal issues down the road. In UK employment law, the main statuses are employee, worker and self-employed, while terms such as part-time and full-time describe working arrangements rather than separate employment statuses. Calling someone a contractor in an agreement does not determine their legal status: the reality of the working relationship matters. Factors such as control, personal service, working arrangements and financial risk can all be relevant, and getting status wrong can lead to employment tribunal claims, unpaid tax and penalties.
Termination
It’s important to handle the termination of employment very carefully. Unfair dismissal and wrongful dismissal are different legal issues: unfair dismissal generally concerns the reason for dismissal and whether the employer acted reasonably and followed a fair process, while wrongful dismissal is usually a contractual claim, such as failing to give the notice required by the contract. Either can result in legal proceedings, including an employment tribunal claim. You’ll need to follow UK law and the employee’s contract when ending employment. Employers generally need a valid reason and a fair procedure for a fair dismissal, although the exact rights depend on the circumstances and the employee’s status and length of service. Statutory or contractual notice may be required, and statutory redundancy pay can apply to eligible employees in genuine redundancy situations. Failing to follow the correct rules can lead to unfair or wrongful dismissal claims and damage the business’s reputation.
Discrimination
Discrimination in the workplace can create serious legal and reputational risks. Under the Equality Act 2010 in Great Britain, protected characteristics include age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation. Unlawful discrimination can arise in recruitment as well as during employment, and claims can be brought in an employment tribunal. Employers should use fair, consistent processes and provide equal opportunities in accordance with the law. Keep appropriate recruitment records, such as applications, interview notes and decision-making criteria, where there is a legitimate need to do so. These records can help explain recruitment decisions if a dispute arises, but personal data should only be retained for as long as necessary and handled in accordance with data protection law.
Your recruitment processes can be designed to encourage a diverse range of suitable applicants while remaining fair and lawful. Selecting someone solely because of a protected characteristic will usually be unlawful, but the Equality Act 2010 allows certain forms of proportionate positive action. In some recruitment or promotion situations, for example, an employer can prefer a candidate from an underrepresented or disadvantaged group where candidates are genuinely of equal merit and the statutory conditions are met.
Electronic Security
If employees use their own devices for company work, a clear bring-your-own-device (BYOD) policy and appropriate technical controls can help manage security and data protection risks, although a specific BYOD policy is not a universal legal requirement. Data breaches can trigger regulatory action and reputational damage. For serious infringements of the UK GDPR, the ICO can impose fines of up to £17.5 million or 4% of an undertaking’s total worldwide annual turnover in the preceding financial year, whichever is higher, as well as using other enforcement powers.
Confidential Information
If employees or other parties will have access to commercially sensitive information, consider whether confidentiality provisions or a separate non-disclosure agreement are appropriate. Properly drafted confidentiality obligations can be legally binding, but they are not automatically required for every meeting and their enforceability depends on the wording, circumstances and information being protected.
Health & Safety
Whatever industry you’re in, you should comply with the health and safety requirements that apply to your work and assess the risks created by your business activities. Employers should have arrangements for managing health and safety, and if the organisation has five or more employees its health and safety policy must be written down. Non-compliance can create serious legal and practical consequences for the business.
Foreign Workers
You must not discriminate unlawfully on the basis of nationality or race, but employers also have a legal responsibility to check that people they employ have the right to work in the UK. Right to work checks should be carried out consistently and correctly before employment begins where required; employing someone illegally without the prescribed checks can result in a civil penalty of up to £60,000 per illegal worker, with more serious sanctions possible in some cases.
Intellectual Property
A common mistake that many new businesses make is not identifying and protecting their intellectual property appropriately. Patents can protect qualifying inventions, registered trade marks can protect brands, registered and unregistered design rights can protect aspects of product appearance, and copyright automatically protects many qualifying original creative works. Before investing heavily in a new product or brand, it can also be sensible to check for existing rights that could conflict with what you intend to use.
Alternatively, if you do not check relevant patents, trade marks, designs and copyright before using technology, branding, imagery or other material, you may inadvertently infringe somebody else’s rights and a legal dispute could follow. Intellectual property protection is territorial in important respects, so businesses operating internationally may need to consider rights and registrations in each relevant market. Legal disputes over intellectual property can be complex, expensive and time-consuming to resolve. Understanding which intellectual property rights apply to your business, keeping evidence of ownership and creation, checking for conflicting rights and taking professional advice where necessary can reduce the risk of being drawn into a costly dispute.
Starting a business with a family member or friend can work well, but as the business grows disagreements can arise if important decisions and responsibilities have not been documented clearly. Where founders are shareholders in a limited company, a shareholders’ agreement can set out matters such as decision-making, share transfers and what happens if someone leaves. In an ordinary partnership, a partnership agreement may serve a similar practical purpose for the partners. If you start a business with other people, consider putting an appropriate written agreement in place for the structure you are using. A shareholders’ agreement can be useful where there are multiple shareholders, but it is not a universal legal requirement and it is not the correct agreement for every business structure.
Disrespecting The Competition
This is something that you need to be careful about. While it can seem normal to criticise your competition, social media and the internet mean comments can be recorded and shared widely. False statements that cause or are likely to cause serious harm to another party’s reputation can potentially lead to a defamation claim, while misleading comparative advertising can create other legal risks. Be careful what you say about your competition and make sure factual claims can be supported. Context matters, but businesses should avoid publishing statements that are false, misleading or likely to create unnecessary legal disputes. In some disputes, settlement or alternative dispute resolution can be more proportionate than continuing to court, but whether settlement is appropriate depends on the facts and legal advice.
Professional indemnity or other business insurance may cover certain legal claims and defence costs, depending on the policy, exclusions and circumstances. The safest bet would just be treating your competition with respect, staying out of any drama, and ensuring that your employees do the same. If you want to reduce legal risk and prioritise compliance, consider seeking advice from an appropriately qualified solicitor or other relevant professional where necessary. They can assess your business model, contracts and regulatory obligations and identify areas that may require attention. Building a relationship with a solicitor who understands your business can make it easier to obtain advice when a legal issue arises. You may also need legal help with matters such as recovering overdue debts from clients or other parties, particularly where ordinary debt-recovery steps have not worked. In the case of legal issues, prevention is always better than cure.
In Summary
No matter the size of your business or whether it’s a budding business in its first year or a well-established business, there is always some risk of encountering a legal issue. One of the best ways to prepare for these potential pitfalls is to become familiar with the legal risks your business might face and put appropriate processes in place. Our post today is a useful starting point, but for complex or high-risk issues you should consider speaking with a solicitor who specialises in the relevant area or industry. Learn what your legal obligations are, keep your compliance processes under review and seek advice where necessary. This cannot eliminate every dispute or legal problem, but it can significantly reduce avoidable risk for a business owner.
