Running a small business can be a legal mine field, and without appropriate knowledge and understanding of the relevant risks involved, you can quickly find yourself in serious legal difficulties. Running a small business without consideration for the law is dangerous, particularly when considering the potential financial and even criminal risks you may be running. That’s why it’s a good idea to have an idea of the relevant legal provisions that may apply to particular circumstances in order to understand where you might be personally liable, and how you can avoid incurring such liability when running a small business.



The first thing to bear in mind is that running a small business has its own legal formalities relating to the particular business form you choose. For example, running your business as a sole trader will require very little in the way of natural legal formalities, other than that you file appropriate tax returns annually and that you keep appropriate records of your financial transactions on a daily basis. That burden is far more strict if you choose to operate as a limited company, and if you do choose this option it may be worth investing in a book on basic company law in order to keep you in check. Don’t take the risk and try to muddle through – it’s better to know what’s expected of you and what the penalties are by getting some form of expert opinion.

Secondly, there may be liability faced if you cause injury, either financially or physically to another party in the course of running your small business. A good way around this may be to include an exemption clause, or disclaimer, although it’s important to understand these aren’t watertight. What they can do is limit your liability in damage to physical property where it is reasonable to do so, and in no way can they limit any liability you may have for anything deemed unreasonable or anything relating to a physical injury or death. It is advisable therefore to opt for insurance coverage to protect against eventualities of this nature.

It’s a criminal offence as a small business director to trade when you are aware that your business is insolvent. This is a general proposition, and there are obviously intricacies involved, although as a general rule this must be protected against and you could receive a criminal record if you breach these laws. Similarly it’s a criminal offence not to take records of your finances and to hold on to those records for three years, and you’re open to inspection of those records by the relevant authorities. This might also be compounded by legal requirements under the VAT regime, where you will be required to keep more rigorous accounts and are with certainty subjected to periodical inspections of your premises.

There are a number of key legal provisions you should be aware of as a small business owner, and they are far too numerous to list here. Rather than spending fortunes on legal advice, a better option is to purchase a beginners’ guide to company law, to give you an insight into the practical requirements of running your business on a day to day basis, then topping up that resource with legal advice as and when required.