Starting a business in the U.S. feels like freedom. It’s freedom if you do it right. But you can dream of freedom all you want; legal risks can and do derail new businesses. New businesses don’t have lawyers, legal teams, or cash flow. That’s when things get risky.
It’s not the obvious legal stuff that trips you up. It’s the small oversights. The things you didn’t know you were supposed to file. The agreements you didn’t think you needed. And when these problems hit, they don’t ask if it’s your first time.
Below, we’ll look at the legal risks you might not necessarily see coming and how to protect your business.
The Liability Risks
Your personal bank account should never be tied to your business. But if you don’t form an LLC or a corporation, it usually is. That means if someone sues your business, they can come for your car, your home, and your savings.
Tons of small businesses start as sole proprietorships because it’s fast and cheap. It feels fine until a customer gets hurt using your product or someone claims you breached a contract. That’s when you’ll wish you had protection.
Even general liability insurance for business policies gets skipped because it “feels optional.” We promise you it isn’t. General liability insurance covers you for…everything you’re liable for. That includes:
- Slips and fall injuries
- Property damage
- Legal fees and defense costs
- Medical payments
- Reputational harm
- Advertising injury
Getting the correct insurance is one of the most important things you’ll do.
Employment Risks
You hire your cousin. You bring on a freelancer. You think you’re too small to need HR. But the U.S. has a patchwork of labor laws, and it doesn’t care if you’ve only two employees. Unless you’re in Texas, then it doesn’t matter at all. But that’s the only state; the rest of them do.
You need to understand federal wage laws. You need to understand state labor codes. If you misclassify a worker — for example, you call someone an independent contractor when the IRS says they count as an employee — you can end up with penalties, back taxes, and legal claims.
And then there are the awkward situations. Firing someone without proper documentation can mean court appearances. So can failing to accommodate a disability. Or not having an anti-harassment policy. Most founders think, “We’re just a startup, we don’t need all that.” But if one person complains to the EEOC, you’ve got a problem.
And don’t forget onboarding. If you don’t use proper offer letters, if you don’t get signed agreements about confidentiality, IP rights, or non-competes where applicable, you’ve lost control before things even begin.
Intellectual Property Risks
We’d say people think of intellectual property risks less, especially startups. This one stings because it hits the stuff you’re proud of. Your brand. Your logo. Your product.
If you launch a business name before checking the USPTO database, you might find out someone else already owns it. They might send a cease-and-desist. They might sue. You might have to rebrand when you’ve just started gaining traction.
And if you don’t register your trademark, someone else can.
You also don’t automatically own the IP for everything you pay someone to create. That only happens if you have a “work made for hire” clause in your contract. So if a designer makes your website, but you never clarified who owns it, they technically might.
The same goes for your product ideas. If you don’t patent them and someone else files first, that’s game over.
Other Common Legal Risks
- No operating agreement
- Missing business licenses
- Violating the Americans with Disabilities Act (ADA)
- Ignoring state-specific regulations
- Data privacy mistakes
- Misleading marketing
No one starts a business thinking about lawsuits. But the founders who stay in business are the ones who planned for them anyway. You don’t need a full-time legal team. You don’t need to panic. But you do need to cover the basics.
