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Top 3 legal advice small business owners should know

Published on
October 24, 2022
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Top 3 legal advice small business owners should know

Most small businesses are part of the primary drivers of economic development in the US. Although they have been hammered in the last two years, they have slowly recovered. As of September 2022, they comprise 99.9% of businesses in the US.

Growth prospects for small businesses are becoming more enticing. The economy has started to stabilize and more opportunities are available. Given all of this, putting up a small business in the US can be rewarding and exciting. 

Yet, it is essential to consider your resources, skills, and preferred business type. Even more important is your knowledge of state laws so that you can avoid legal issues and costs. Every year, 36-53% of small businesses in the US get sued.

On average, small business owners spend $54,000 on liability suit costs. While this may only be a portion of your business’ earnings, it has a solid impact on your business in general. Bad reputation, operational suspensions, and even shutdowns are possible. 

Maybe you are thinking twice about your business at this point. However, don’t worry. You can proceed with your plan and avoid lawsuits. In this article, we will provide you with free legal advice and tips you need to protect your business.

1. Implement strong employment policies

From employee recruitment to resignation, you need to have strong and consistent policies, which must adhere to the labor and business laws in the US. Note that labor laws may vary with the state. Therefore, you must have a business lawyer who can help you check all the laws in the US and the particular state to establish the business. 

This is even more important when you’re not a resident of the state. Doing so may protect you and your business from potential lawsuits, which will help you save money and time. Laws related to equal opportunities among employees are some of the most popular in the US. Here are some of the employment laws small business owners must be familiar with. 

Title VII of the Civil Rights Act of 1964 

The Title VII of the Civil Rights Act of 1964 (CRA) protects the rights of employees and job applicants. It prohibits discrimination, on the grounds of color, race, religion, and nationality,  in the labor force. Moreover, discrimination on the basis of sex, which also extends to pregnancy and gender preference, is also prohibited.

The law also protects the complainant from retaliation. Therefore, you must be cautious with your employment policies before promoting your business. The law covers a broad range of activities that coincides with other laws, which we’ll discuss later. Here are some of the most important things from the CRA that small business owners must be more familiar with. 

  • It’s illegal to refuse to hire an employee because of his or her race, religion, sex, nationality, or color. 
  • It’s unlawful to segregate employees in such a way that leads to discrimination. 
  • While the CRA mandates employment hours, overtime hours, and rates, it does so in combination with The Equal Pay Act of 1963, which focuses on wage disparity due to sexual differences. Both legislations stipulate that both genders must receive equal wages for performing equal work. Similarly, you can’t reduce wages or the hourly rates based on gender either. 
  • You can’t discriminate against employees in training programs and job promotions. 
  • You can’t post job advertisements and referrals that further prejudice the above attributes. 

The Pregnancy Discrimination Act 

Pregnancy falls under the category of sex. However, the Pregnancy Discrimination Act protects the rights of pregnant women, which extends to medical conditions and work limitations related to pregnancy and childbirth. Women must receive the same opportunities for work, promotions, and compensation.

Of course, the law will be lenient on jobs that are not suitable for pregnant women. Therefore, it’s best to discuss everything with applicants and employees and put everything in a contract and other legal documents. Do it in a way that doesn’t lead to discrimination.  

Titles I and V of The Americans With Disabilities Act Of 1990 

Disability relates to physical or mental impairment, which affects one’s ability to perform a specific task. Previously recorded impairments also fall under this category. If you can’t properly see, hear, walk, think, or take care of yourself, it may be classified as a disability. Moreover, the use of medication, medical supplies and equipment, assistive technology, auxiliary aids, and neurological medications can be a sign of a disability. Even those that don’t have any visible needs may nevertheless be persons with disabilities. 

It’s illegal to discriminate against an employee for job opportunities, wage disparity, promotions, training programs, and apprenticeships because of a disability. Segregating employees with special needs from regular employees is unlawful as well. Assessing employees must always be based on their work. Otherwise, entrepreneurs may face lawsuits. 

The Age Discrimination Employment Act of 1967 

Older workers may find their efforts to get and keep jobs futile and, therefore, it’s unlawful to refuse or discharge a person because of his or her age. You also can’t segregate or reduce the wages of employees simply because of their age. Promotions, training programs, and job referrals are part of it. Moreover, you can’t exclude applicants who are over forty years old. 

Title II of The Genetic Information

Genetic information shows the genetic tests of an individual. It also shows their family history, including any diseases or disorders they might have. While this information may help a person avoid, or at least make an early detection of, a disease or disorder, because of what it could reveal about a person to an employer, employees and applicants may be disadvantaged. Therefore, it’s unlawful to refuse or discharge an employee, segregate them, or give them lower wages because of genetic information. 

Nevertheless, there are exceptions, such as when the employer offers health and health genetic services. Business owners and employers may request it as part of their wellness program. Employers may also require genetic information to comply with the Family and Medical Leave Act.

2. Avoid customer discrimination

Customer satisfaction is one way to achieve business success, as it strengthens your business customer base and brand loyalty. Furthermore, it may lead to more demand for your products and services, which can translate into higher revenue, leading to growth and expansion. However, this is a bit tricky because a customer may file a lawsuit even if you make the slightest mistake. Here are some ways to determine whether the refusal of customers is legal. 

Legal customer refusal 

Indeed, the customer isn’t always right. Though your business always wants higher demand, customers can become an inconvenience. In fact, you can refuse to sell them your products and services in the following circumstances: 

  • Wild behavior that disrupts services or affects employees and other customers 
  • Customers arriving before and staying beyond business hours
  • Lacking hygiene, especially now since we are still at the height of the pandemic 
  • For accommodation and restaurants: customers arriving without a reservation 

Illegal customer refusal 

They say that taking care of your customers requires the same amount of effort as taking care of your employees. Both the CRA and the Americans with Disabilities Act of 1964 prohibit customer discrimination. Therefore, customers are entitled to receive equal quality products and services. Here are a few examples of when refusing customers is illegal: 

  • Refusing customers based on race, religion, color, nationality, or sex. An example of this is if a baker refuses to bake a cake for a gay couple. Unfortunately, in 2018, such an incident happened in Colorado, which ultimately went went to the Supreme Court, as it violated the Colorado Anti-Discrimination Act.
  • Segregating customers because of race, religion, color, nationality, sex, disability, or sexual orientation. Unfortunately, these types of discrimination are common in restaurants. In fact, research from 2005 shows that customer discrimination was present even in popular restaurants. 

3. Get liability insurance 

Having financial protection is very important for businesses, as it saves owners from shelling out money because of problems arising from the business. The best way to protect your business is by getting liability insurance. Business liability insurance protects your finances when you’re involved in a lawsuit and covers fees and costs, such as the following:

  • Medical and healthcare costs incurred by an employee or customer
  • Legal help 
  • Settlement offerings
  • Non-monetary losses 
  • Compensatory damages 

In most cases, businesses get general liability insurance, which covers customer and workers’ compensation when issues arise from unforeseen circumstances. To be more specific, it settles physical injuries and property and personal damage. There are other types of business insurance a business can get, which are the following: 

Professional liability insurance 

Commonly called Errors and Omissions insurance, professional liability insurance covers legal services, legal aid, and claims arising from mistakes in the services provided. Professional service providers, such as accounting and law firms, often have this type of insurance. Failure to provide services on time may also lead to lawsuits. In general, it covers inaccurate advice, negligence, misrepresentation, and libel. 

Product liability insurance 

Product liability insurance, which covers legal services and claims that may arise from selling a defective product, is very common among manufacturers and sellers. More specifically, companies involved in producing food, medicine, and cosmetics, where errors can lead to serious adverse effects, have this type of insurance.

Property insurance 

Small businesses must have insurance to protect their property, such as real estate and cars. This has become even more important now, considering that natural disasters are more frequent. 

From 1980 to 2021, the US suffered from 310 natural calamities, amounting to $2.15 trillion in damages. However, since 2017, because of the increased frequency of natural disasters, the US has suffered $742.1 billion in damages. In 2021 alone, 20 natural calamities wreaked havoc in the US, leading to $57 billion in damages. 

This data, however, only pertains to homes and, therefore, the figures are higher if we account for businesses. Properties for residential and commercial leases are also affected. Having property and car insurance will ensure the financial security of your business. There are low-cost insurance providers that can cover small businesses. 

Protect Your Business With an LLC 

Starting a small business in the US can be rewarding as the economy copes with inflation. There are various approaches entrepreneurs can follow to start a business. But they must also consider their financial capacity and the time and effort to put into it. Moreover, it is essential to have legal resources and to know how to protect the business from liabilities and lawsuits. 

Although you can get a pro bono or volunteer attorney to help you with legal forms so you can defray the costs, it is best to get things right the first time. Business incorporation may be the proper step forward in setting up your company.

An LLC may be the perfect business structure for you, as it offers added ease and protection, especially for startups in the US. Since personal assets are separate from the business, legal matters are less stressful. For more information, reach out and seek assistance from us at doola. With our business and legal experts, we aim to help entrepreneurs achieve their goals. 

If you want to get in-depth legal advice, especially about forming a small business, you may reach out and seek assistance from doola. We have business experts who can provide the legal assistance you need.

FAQs on legal advice small business owners should know

How can you put up a business even without money? 

You can find an assistance program for for-profit and non-profit startups, which are generally funded by the Small Business Administration, angel investors, and private grants. However, you’ll need a business plan to apply.

Is it possible to manage a business from home?

Small business owners can manage their businesses from home. However, you must nevertheless consider local zoning laws.

What is the total cost of forming an LLC for small businesses? 

It depends on the state where you want to form an LLC. However, costs may vary, as each state may have different filing fees, taxes, registered LLC agent fees, and license fees.

Doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.
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BIO
Arjun Mahadevan
CEO and Co-Founder
Co-founder at doola, previous Product Manager at Dropbox, and an alum of the Wharton School of Business. He’s personally processed over 100 applications and spoken to 500 customers.

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