The high occurrence of legal issues might lead you to believe that SMEs are being proactive in mitigating legal risks, however, most SMEs believe legal issues are more likely to happen to other peoples’ businesses rather than their own. Only 12% of SMEs surveyed think that legal issues are ‘likely to pose a significant risk’ to their business (LawBite) This wishful thinking means that most SMEs are caught off guard when legal issues arise. To avoid losses and be more proactive, SMEs need to take steps to understand what risks they are exposed to and take corrective actions.
Which legal issues pose the biggest risk to my business?
Risks that relate to legal matters – like contracts, entities, assets, IP and compliance – can have serious, adverse effects on a business. The most common risks that could have legal implications generally fall under the following categories:
- Contract: the possibility of financial loss either due to a buyer reneging on the contract or a failure by the organization to adequately manage the contractual benefits or obligations
- Disputes: any dispute in which a legal claim is made, including employee misconduct, accidents, product liability, etc.
- Corporate: choosing a legal and governance structure for the organisation will set the tone and set a foundation for processes. Any issues around taxation, liability, fraud or unethical business practices, etc., and how management and operational decisions are made that could have negative consequences can be considered corporate risk.
- Asset: the value of both tangible assets, like buildings, and intangible assets, like human capital and intellectual property, need to be protected.
- Regulatory: any compliance risks the company is subject to, which could result in losing the company’s license to operate or facing financial penalties.
How can my business prevent legal issues from occurring?
Most legal issues are preventable. But, the responsibility to reduce the potential of negative consequences, like litigation or fines, from happening lies with in-house legal departments. To accomplish this, legal departments need to adopt a proactive, structured way of staying on top of legal risks and obligations.
A big challenge many businesses face is that legal obligations and liabilities are often hidden in the small print of documents, scattered across spreadsheets, stored across multiple hard-drives and share by emails. Getting a reliable overview of the latest data on all legal risks encompassing the corporate structure, its assets, contracts, disputes and external regulation is next to impossible. What’s more, poor processes, such as manual mistakes, non-compliant terms and/or an inability to meet deadlines, can put your company at risk.
To address this challenge, in-house teams can equip themselves with technology that helps them store, manage, analyse and report on all of their legal data – from contracts, claims, IP, compliance and more. The standardisation of routine tasks (with templates and reminders) and simple workflows (with rules and alerts) can empower the entire business and help reduce the organisation’s exposure to contract risk.
A small investment in technology like Legisway can give you an overview of all your legal data, including your risks, and help you adopt simple workflows to standardise how you manage legal matters across your entire organisation.
Learn more about how GCs and in-house legal teams are using Legisway to manage risk here.