LEGAL NEEDS OF SMALL BUSINESSES OWNERS
While California’s lowest-income individuals can access legal aid organizations and corporations often employ dedicated legal teams, the state’s 4.1 million small businesses[1] are frequently underserved and are overlooked when discussing the justice gap. Without affordable legal help, small businesses can face legal risks, lost opportunities, and potential failure. Since small businesses often provide jobs and services vital to their local communities, the impacts of their struggles extend beyond their doors. In fact, small businesses support 2.6 million jobs annually and 45 percent of them are minority-owned.[2]
To better understand the legal needs of small business owners in California, the State Bar partnered with the California Office of the Small Business Advocate (CalOSBA) to conduct a brief survey of business owners affiliated with CalOSBA to learn about their legal needs related to operating a business and barriers that prevent those legal needs from being met, and to identify areas where the State Bar of California might help.[3] The following analysis is based on the 121 business owners who participated in the survey. Given the low survey response rate, the results discussed may not fully represent all small businesses in California, but they highlight opportunities for further exploration of their needs.
When asked to reflect on the 2023 calendar year, 40 percent of small business owners reported having at least one legal need. Half of those reporting a legal need identified a need related to contracts and agreements.
Small business owners were asked to report how many legal needs their business experienced in 2023 and 40 percent reported having at least one legal need. Of those with identified legal needs, an average of four needs per business owner was reported. The most frequent legal need for small business owners in 2023 (50 percent) was related to drafting, reviewing, and negotiating contracts and agreements. Other commonly reported legal needs related to tax law and financial legal advice (40 percent) and to compliance, governance, and licensing/permits (38 percent).
When seeking help, small business owners were more likely to look for information online than talk to a lawyer.
Small business owners were asked a series of questions about their most recent legal need, regardless of when it occurred. Figure 22 shows the sources of help that small business owners sought to address their most recent legal need. Almost all owners (93 percent) looked for information online while only 61 percent talked to a lawyer. Less than half talked to a small business association while an additional 44 percent talked to a legal aid provider. Just one in four (24 percent) talked to a legal helpline or lawyer referral service.
Figure 22. Sources of Help Small Business Owners Used to Address Most Recent Legal Needs
Note: Respondents were asked, “Thinking about your most recent legal need, did you do any of the following?” They were given the option to select “yes” or “no” for each response option listed in figure 1.
Figure 23. Nature of Legal Help Small Businesses Sought to Address Most Recent Legal
Over three-quarters of small business owners who sought help wanted legal advice about their specific situation and what actions they should take.
Small business owners were asked to identify the nature of the legal help they sought to address their most recent legal need; their responses are shown in figure 23. The most frequently sought type of legal help, by far, was legal advice about their specific situation and what actions they should take.
Note: Respondents were asked, “What kind of legal help were you seeking to address your most recent legal need? Select all that apply.”
More than two-thirds of small business owners reported being worried about the cost involved with talking to a lawyer.
Survey respondents were asked why they did not seek legal help. Over two-thirds (67 percent) reported that they were worried about the cost involved with talking to a lawyer.[4] Another 35 percent reported that they did not know how to find help and 27 percent reported not having the time. An additional 30 percent of small business owners selected “Other”; the themes of the “Other” write-in responses included financial constraints, difficulty finding lawyers with relevant expertise or interest, and lawyer unresponsiveness.
Among business owners whose most recent legal needs were not met, 85 percent reported being impacted financially through lost business or revenue and the prevention of business growth.
Small business owners were asked if their most recent legal need was completely met at the time they completed the survey and approximately 58 percent reported that it had not been. Figure 24 shows the different impacts small business owners faced when their legal needs were unmet. The top three impacts were: (1) financial (e.g., lost business/revenue, prevented business growth); (2) time (e.g., resources taken away from the business); and (3) emotional (mental health and well-being).
Figure 24. Top Three Impacts of Unmet Legal Needs for Small Business Owners
Note: Respondents were asked, “What has been the impact of not getting your legal needs related to your most recent legal need completely met?”
Small business owners reported that increased access to reduced fee or free legal services would best improve their ability to obtain the legal services needed for their businesses. Small business owners were asked to share in an open-ended format about what would improve their ability to obtain the legal services needed for their business. Many responses highlighted cost as a significant barrier to obtaining legal services for small businesses and suggested that reduced fee or free legal services would significantly improve the ability to obtain legal assistance. Other themes that were highlighted in the responses included:
- More options for contingency arrangements in response to small business owners experiencing frustration with lawyers prioritizing billable hours over client needs.
- Clearer directories with detailed information about lawyers’ areas of expertise and rates to improve the ability to find the right lawyer. The need for a referral system with ratings or grades to help identify competent lawyers and a centralized institution to connect small businesses with the appropriate help.
- Free consultations and easy-to-find resources from organizations like the Small Business Association, recorded webinars, clear explanations of legal concepts, and simplifying the laws could make legal navigation easier for small business owners.
- Improved professionalism and accountability within the legal field due to negative experiences with lawyers like unreturned calls and fear of retaliation for negative reviews.[5]
CONCLUSION
The challenges small business owners face in addressing their legal needs highlight an often-overlooked aspect of California’s justice gap. Survey results show that many struggle to access affordable legal support, leaving them vulnerable to disputes, exploitation, and financial instability. Common barriers include high costs, lack of knowledge about finding legal help, and time constraints due to the demands of business operations. These challenges do not only affect business owners but also harm local communities through job losses and reduced economic activity.