When business owners think about legal risk, they often think about big events: lawsuits, ownership disputes, business sales, or regulatory investigations. The irony is that the legal issues that tend to create the greatest disruption begin long before any of those big events. This post is the first in a three-part series based on a simple observation: many business risks stay invisible until someone has a reason to look for them. In this first part, we’ll look at how legal issues often begin as normal business decisions long before anyone spots the legal concern.
In my years advising businesses, I’ve noticed a pattern: businesses tend to make business decisions for business reasons. A company hires a contractor because it needs work done yesterday. Ownership divides responsibilities informally because “everyone understands their role.” A growing company develops processes organically because they simply work. In the moment and on its own, none of these decisions feel risky, and they tend to work. The problem is that those decisions do carry risk, and that risk can remain invisible until someone has a reason to look for it. Besides that, the invisibility of the risk can be confused for lack of risk. When everything seems to be working, why break something that doesn’t look like it needs to be fixed?
This issue is common in the ownership group of companies. Ownership is working off a shared understanding of who owns what, how decisions are made, and what future everyone is working toward. Those assumptions hold until the business is up for sale, an owner wants out, or another ownership transition is on the horizon. Then everyone becomes keenly interested in what their legal documents and policies exactly say. This also comes up in work product and intellectual property questions. A company hires a contractor, the work is done, the contractor is paid, and everyone moves on. Later on, a buyer or investor wants to know what the company owns and how the company knows it owns it. In both cases, the hidden risk didn’t seem urgent, until it suddenly does. This is why disruptive legal issues seem to come out of nowhere, even when they really didn’t. Instead, the issue stayed hidden until the worst moment.
If you’re reading and wondering what to do next, my suggestion would be a simple question: What are you assuming is fine simply because you haven’t checked on it recently? “Not much” is the answer sometimes, but other times, it might just help you identify an issue early. By addressing it today, you save the issue from popping up during a big event, where it might be harder (and more expensive) to fix.
Thanks for reading! In the next part, we’ll dig more into why issues remain dormant and why they tend to become urgent all at once.