Gradually Increasing Legal Risk

Gradually Increasing Legal Risks

Studies Showing Legal Risks Are Constantly Increasing

A recent study says that over the past few years, a gradual increase in legal risk has been observed in the past few years putting small businesses in Canada at stake. The study found that legal issues for small firms are getting worse than they were even eight years ago & 7 out of 10 small businesses have dealt with around 1 legal issue in last three years.

In Canada, there were more than four million small enterprises in operation as of December 2021. To better understand the incidence of legal challenges in the Canadian small business environment and the effects these disputes have on business owners’ financial and mental well-being, a research has been conducted.

It is noteworthy that only 38% of the lawsuits filed in the previous three years had a pandemic component, per the report. Regular company operations were responsible for about 62%.

A startling fact came up is that 3 out of 10 small-enterprise owners knew someone who had lost their business as a result of a legal conflict or who had been adversely affected by one personally. This is a threefold increase over the 2015 study, when only 1 in 10 respondents claimed they knew a business owner who was negatively impacted.

Financial And Mental Burden
Time is money, as any business owner knows all too well, especially when it comes to the time spent on legal concerns.

Small-business owners are concerned that legal battles can have a negative impact on the productivity, reputation, and future growth & expansion plans of their companies. They also worry about being sued by Government Regulatory or Tax Agencies, Suppliers, General Public, Customers, Employees, Shareholders or other investors

Legal Protection
Occasionally legal issues occur out of nowhere, leaving firms to figure out how to handle them. According to the report, 41% of businesses would consider legal costs to be an inevitable part of conducting business. 21% of respondents said they would reduce other operational costs, while about 23% said that they would use a business line of credit or get a loan. Around 8% of businesses would sell off assets to pay for legal fees. Around 37% were unsure.

According to the analysis, some policies do offer some legal protection, but the average commercial portfolio coverage has gaps. Contractual disputes, debt collection, revocation of business licenses, tax audits, or even traffic infractions might not be covered. In Canada, a commercial LEI (legal expense insurance) premium can only be a few hundred dollars a year, yet over 60% of businesses spend $5,000 to $50,000 or more a year on legal expenses and other costs.

Small businesses are the backbone of the economy. The gradual increase in legal risk is something to think about & worked upon. However, here’s a list of few Insurance that can help reduce Legal Risks:

  • Liability insurance
  • Professional liability insurance
  • Directors and officers insurance
  • Cyber liability insurance
A right Insurance Broker can help you & your business manage legal risks by suggesting the best insurance that can provide financial protection in the event of legal claims or lawsuits.


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