Academic journal article Journal of Small Business Management

Differentiating Legal Issues by Business Type

Academic journal article Journal of Small Business Management

Differentiating Legal Issues by Business Type

Article excerpt

Developing legal strategies is a fundamental part of business formation and strategic operation. The ability to incorporate legal planning into the business planning process allows entrepreneurs to strategically plan their operations to minimize risks arising from legal and regulatory regimes and better protect the assets of the business and entrepreneur. Research regarding the legal issues encountered in nascent business ventures is just beginning. Conducting a content analysis of 292 legal information letters, prepared in a university-based legal clinic for new ventures, legal issues and business type were identified. An analysis of the data indicated that: (1) certain legal issues are relevant to all new ventures, (2) certain legal issues are relevant to specific types of new ventures, and (3) the relevancy of individual legal issues will vary depending on the category of business.


In recent years the growth of small business and their contribution to the economy has been acknowledged in the popular press and academic literature. A well-developed body of research has evolved in the area of entrepreneurship in conjunction with economics, marketing, finance, strategy, and other fundamental areas of business. Unfortunately, the study of legal issues and their effect on the development of new ventures has received insufficient consideration in the existing literature. This study was conducted to identify and illustrate the relevance of legal issues to new ventures, in general, and to determine whether the importance of those issues varies by business type.

Previous Research

A literature search of business and legal journals resulted in the identification of relatively few studies addressing the types of legal issues that affect new ventures. There are many articles that discuss the impact of a particular legal issue on business. (1) There are also a few studies looking at legal issues within a specific industry, (2) However, there are very few studies that systematically analyze the breadth of legal issues across a broad range of new ventures.

A body of literature is beginning to emerge from the small business legal clinics, affiliated with law schools that provide legal services to entrepreneurs. (3) Although these articles consistently identify certain legal issues to be of importance to entrepreneurs, no study attempting to quantify the significance of these legal issues to new businesses has been identified.

Brown, Colborne, and McMullan (1988) studied the New Venture Development Legal Clinic at the University of Calgary. This study examined the ability of early-stage entrepreneurs (80 percent at the preoperational stage and 20 percent at less than one year of operations) to identify all the legal issues related to their ventures. In addition, they examined whether the stage of the operations was related to the legal issues identified and whether business strategies were altered as a result of the legal information received. Although the focus of this study differs from the current study, it confirms that the same legal issues are relevant to both samples. The relevant issues are: business format, intellectual property, liability, regulatory, financing, contracts (including employment), and taxation.

Although Hayden and Brainard 1999 focus on technology transfer, the conclusions of the authors reinforced the importance of legal issues to these types of businesses and supported the results of Brown, Colborne, and McMullan (1988).

  The most important observation from the survey data regarding small
  companies, entrepreneurs and inventors was that they are generally
  unaware of the potential issues, legal and otherwise, that may affect
  them. Ultimately, issues such as protection of intellectual property,
  dispute resolution, ownership and organizational structure could
  affect the survival of a particular technology and the rights of its
  owner(s). … 
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