As a business owner, you should always be aware of the legal risks your company faces. Unfortunately, you can’t avoid every issue your business will ever meet. Every legal problem has its unique set of facts, issues, and qualities.
However, some legal problems are more common than others. This article will discuss the seven worst legal issues that your business can ever face:
1. Consumer Fraud Laws
The Interstate Commerce Act prohibits deceptive trade practices between businesses in different states or countries.
The Federal Trade Commission (FTC) is the agency responsible for enforcing these laws. There are various deceptive trade practices, including misleading advertising and bait-and-switch tactics.
Many states also have similar consumer protection laws, which allow private citizens to sue for damages and attorneys fees. This includes false advertising and guarantees that are not true. It also covers the regulation of unfair or deceptive acts by all types of sellers, including retailers, manufacturers, jobbers, wholesalers, brokers, and even charitable fundraisers.
2. Environmental Laws
Your business can get slapped with an expensive fine for violations of environmental law if your operations negatively impact the environment or public health in any way. This is why government agencies regularly audit companies to ensure that their facilities comply with environmental laws.
3. Tax Evasion
Selling tax-free products is a great way to get customers. However, avoiding taxes on your business income is illegal. It doesn’t matter whether you willfully tried to evade taxes or not. This crime can quickly put you behind bars and result in fines of up to 200 percent of the unpaid taxes and interest.
Large companies have in-house accountants who check and audit the company’s accounts to ensure they are compliant with the law. Some firms also contract third-party vendors for their tax preparation services. It’s an easy solution to making sure their business complies with all the complicated tax law requirements.
4. Insider Trading
Trading on non-public material information is illegal, especially if it’s done by people inside the company with access to such knowledge. Suppose you trade stocks on this kind of information or pass it on to others. You can be sued for insider trading and fined up to three times the profit made or loss avoided by the illegal trading.
One of the worst insider trading cases, named the ImClone case, happened when Martha Stewart had inside information about her company’s new drug. She sold all her stocks after receiving news of bad decisions on the new drug approval that would cause the stock to drop dramatically.
Another example is George Soros and his $1 billion single-day gain on Bank shares back in 1992, made possible by his insider information.
5. Violations of Copyright Law
Copyright infringement is rampant online now because e-commerce has become so popular. Customers are always looking for cheaper products, so they often turn to eBay, Craigslist, and Amazon. Violating copyright law can be very costly because court orders have been growing in size and range. The long arm of the law can even target individuals and small businesses if their actions warrant it.
Small businesses often lack the money and resources to fight copyright infringement, so they shut down when confronted by a powerful company with experience in the legal arena. If you think this won’t happen to your business, consider how much it will cost you in terms of time, money, and goodwill to fight something you’re not sure you can win. Of course, this just gives the copyright holder more incentive to settle with you.
6. Possible Data Breach
Suppose your company loses private data or has it stolen from them by hackers. There are significant legal liabilities involved even if no one is harmed. If some hacks you and you compromise your personal information as a result, expect to be sued by customers with lawsuits stemming from identity theft or credit card fraud.
Another kind of data breach involves losing or mishandling any social security numbers stored in your company’s records. Though companies aren’t required to disclose when this happens, the legal liabilities are the same since it compromises customer identity.
Some businesses might also lose information in physical form by leaving paper records where they shouldn’t be, which can make them vulnerable to theft too. This not only has privacy implications. However, when left unchecked, lost or stolen documents can give criminals access to credit card numbers and other personal data, leading to fraud.
7. Defective Products
Businesses that produce defective products can be sued under strict liability, negligence, breach of warranty, and consumer protection theories of recovery. This means that regardless of whether you’re at fault for selling the defective product, you can still get sued regardless. Defective products that cause injury or death result in lawsuits where the plaintiff seeks monetary damages for their injuries and other related expenses.
If you’re a manufacturer of defective products, be prepared to recall them from your shelves. A recall is when a company announces to its customers that they should stop using a particular product because it’s dangerous or defective in some way. Depending on the product and situation, a recall can go very badly for your company as it affects your bottom line and customer goodwill.
Not only that but you’ll likely be sued by anyone who was injured or affected by the defective product if someone died as well. This means more legal expenses and court costs on top of the hefty fine you’ll have to pay to the Consumer Product Safety Commission (CPSC).
It is essential to remember that any company can face all these legal problems at one point in time. Therefore, it’s crucial for you to understand how your particular industry might be affected and the possible consequences if things go wrong. The best way to do this is to research your jurisdiction and other regions where you’ll likely sell products. That way, you know which regulations to follow before they become an issue.