Legal Terms Every Small Business Owner Should Know

As a small business owner, you have a million things on your plate. Therefore, prioritizing what’s most important can be one of your biggest challenges. Many entrepreneurs fail to fully grasp the legal aspects of their community. When legal issues arise, entrepreneurs will rue the day they failed to take business law as seriously as they should have. As such, there are some legal terms every small business owner should know because knowing this information could mean the difference between their business thriving or failing.

What Legal Terms Do Small Business Owners Need to Know?

The legal terms a business owner should know depend on the type of business he or she owns. For instance, the owner of a dentist’s office will need to know healthcare-related legal terms, while the owner of a hardware store would not. Still, there are a few legal terms that most business owners should know regardless of their industry, including but not limited to the following:

• Natural Person – This one is simple. A natural person in a lawsuit is a defendant or plaintiff that is a person as opposed to a corporation.
• Malfeasance – This legal term involves an individual or corporation doing something wrong. This can include actions that are morally wrong and/or illegal, such as being dishonest or discriminatory practices.
• Negligence – When people or businesses are negligent, it means that they carelessly and unintentionally commit an illegal act that hurts others financially, emotionally, or physically. Negligence can also involve individuals or businesses hurting others because they fail to act in the way a reasonable person would have in a similar circumstance.
• Liability – Businesses and people’s liability is their legal responsibility for their actions. If people or businesses do not meet their responsibilities under the law (intentionally or not) and it results in harm to others, then it can be grounds for a lawsuit.
• Nonfeasance – This term involves an individual or business not acting when acting is legally required.
• Force Majeure – If a business or person fails to honor contractual obligations because of circumstances that are unforeseen and/or out of the business’s or individual’s control, then they can often find legal relief from fulfilling their obligations through force majeure.
• Fraud – Acting in a fraudulent manner involves a person or business purposefully deceiving others to gain possession of their rights, property, or money.
• Contract – This is an agreement between two or more parties that gives each side responsibilities and rights that are enforceable by law. Contracts can be expressed, oral, or written. Oral contracts can be difficult to enforce. Examples of contracts include business partnership, sales, non-compete agreements, housing, employment, licensing, and service agreements.
• Alternative Dispute Resolution – ADR involves bringing in a neutral third party to help disputing parties come to a settlement agreement that will allow them to avoid mediation, arbitration, or trial.
• Articles of Incorporation – In the US and Canada, you need these documents to establish a corporation, including an Inc., S-Corp, or LLC. The documents are filed with the Secretary of State. Articles of incorporation include crucial information about a business, such as details about its corporate structure, which is important for tax purposes.

Related: How Should I Structure My Business?

Laws Small Business Owners Should Know

In addition to legal terms, there are corresponding business laws that business owners should know, including:

• Employment Law – A small business owner needs to understand employment law, especially if their business is too small to have a human resources manager. Understanding employment law will enable a business owner to properly deal with issues involving sexual harassment, racial discrimination, firing and hiring employees, employee salaries and benefits, and other similar problems.
• Finance Law – Understanding financial rules and regulations ensures small business owners do not break antitrust laws, securities, and bankruptcy laws.
• Environmental Law – These laws often pertain to a small business owner’s dealings with the Environmental Protection Agency (EPA) and making sure their business follows laws regarding its impact on the environment, including controlling the air pollution it produces and properly disposing of its toxic materials.
• Intellectual Property Law – All businesses, whether large or small, need to at least have a basic understanding of intellectual property. IP laws enable businesses to protect their trademarks, trade secrets, and patents.
• Marketing Law – No matter where a small business advertises, online advertisements, billboards, print ads, radio and television commercials, text messages, or phone calls, business owners should know the laws that regulate marketing. This includes consumer protection laws, which ensure that businesses do not mislead or endanger consumers with false advertising. These laws regulate things such as what can and cannot be put on a product’s label, telemarketing, and spam emails and text messages.
• Online Business Practice Law – In today’s business landscape, it is nearly impossible for any type of business to survive if it has no online presence. As such, there are laws that businesses must adhere to online, including privacy, tax, copyright, and security laws.
• Privacy Law – Privacy laws involve protecting your customers’ personal information from data breaches and other forms of theft.
• Labor Law – Labor laws are in place to protect workers for the most part, including making certain that worksites are drug-free, safe, and do not violate Occupational Safety and Health Administration (OSHA) regulations.
• Immigration Law – This is mostly about laws regarding foreign employees and ensuring they are legally eligible to work in the US. Learn more about immigration law here.

If entrepreneurs are unsure whether they are up to date on the legal terms every small business owner should know, they should discuss their concerns with an experienced business attorney to ensure they are not in violation of any rules or regulations that could hurt their business.