In the United States, businesses are categorized as small businesses depending on the average number of employees over 12 months or the average value of receipts during the same period. However, the specific numbers vary depending on the industry. Small businesses are entitled to various rights and initiatives, many of which are managed by the Small Business Administration (SBA) and the Small Business Act, first enacted in 1953. There were 33.3 million small businesses in the US during 2023. These businesses employed nearly 62 million Americans and grossed a combined $13.3 trillion in revenue. The SBA issued $87 million in microloans, which were partly used to address the various legal matters small businesses must be ready for.
Small business leaders must prepare for a variety of legal issues. These issues become more varied as businesses grow and expand into adjacent markets. Whether it is a nasty public lawsuit or a minor clerical error that fails to comply with state law, legal snafus can cause serious disruptions to the normal flow of business operations. Inadequate preparations and responses to legal problems can ultimately put a small company out of business. Small business owners must understand the basic legal needs of their company.
Several important legal matters arise before a small business has launched. Entity formation is the process during which a new business chooses a management hierarchy and overall structure. Business entity formation also encompasses the legal and economic steps owners must take to officially form that entity so it can begin operations as a recognized business. Following entity formation, the business is viewed as a legal entity, or “person,” distinct and separate from the owners.
Entity formation represents the perfect opportunity to establish an in-house legal team or a reliable partnership with a third-party business law firm. Failure to properly form a business entity opens owners up to various liabilities, which can then be transferred onto the business, hindering operations before they have started.
Improperly filling out entity formation documents is one potential mistake. Business owners also risk choosing the wrong type of business entity for their venture. If the business and the selected entity do not match, owners can expect to deal with an influx of paperwork and regulations that do not pertain to the business’s day-to-day activities. Additionally, owners may end up assuming excessive tax burdens. Business leaders should strongly consider collaborating with an experienced business lawyer as they progress through the entity formation process.
Hiring employees is another early-stage process that entails many potential legal complications. US employment law is complex, and it is unreasonable for a small business owner to think they can expand their labor force without understanding state and federal regulations governing topics such as overtime pay, minimum wage, guaranteed breaks, unlawful hiring practices, and much more. Business lawyers can also assist leadership with drafting employment contracts and handbooks.
Finally, as businesses grow, they eventually need to let certain employees go. Releasing an employee can be a legal minefield if owners are not well-versed in the process. Nearly every state in America is an at-will employment state, meaning employees can be terminated for any reason so long as it is not unlawful. Yet, many employers terminate workers after the employee invokes a legal right. Business lawyers can help guide employers through the termination process so that it does not become longer and more expensive than it already is.
