The legal needs of small businesses

At start of 2020, small businesses employing up to 50 people accounted for 99.3% of all businesses (6 million), and 49% of all business employment (27.7 million employees) in the UK. In 2020 estimated turnover of small businesses was £1.6 trillion – or 36% of total business turnover in England and Wales. Despite their importance, they often have limited inhouse legal capability to deal with the challenges of running a business.

We use our Small Business’ Legal Needs Survey to assess small businesses access to justice. Then to understand the legal issues they face, how they respond to them and if they get the legal support they need. We then use this in working to achieve our regulatory objectives, including ensuring access to justice through regulation.

The LSB have so far run three waves of the survey, in 2013, 2015 and 2017. In early 2021 we commissioned a review of the survey questionnaire by Prof. Pascoe Pleasence and Assoc. Prof. Catrina Denvir. This is to enable the survey to also analyse the impact on legal issues of Covid-19 and EU exit to small businesses. Further, for the first time the survey will estimate levels of unmet legal needs for small businesses (following OECD guidance on ‘individuals’ legal needs surveys’) and levels of legal capability. 

The 2017 Small Business Legal Needs Survey

The 2017 wave analysed the experiences of small businesses, to show the origin of legal problems that they faced and their strategies for dealing with these problems, including where they sought advice and their experiences of doing so. It found:

Business problems have declined in incidence

  • Around a third of small business had a legal problem in the preceding 12 months, this has fallen significantly to 31% down from 36% in 2013. Levels of incidence fell in all problem areas except Regulation. The most frequent issues across the three surveys were: late or non-payment for goods or services provided; goods and services not as described; and liability for tax owed.
  • Other businesses were the main source of problems, but this had fallen significantly from 49% in 2015 to 44% in 2017.
  • Around half of small businesses reporting a legal issue said it had a negative impact. Total annual losses to small businesses due to legal problems was estimated at £40bn, and over 1 million individuals in small businesses suffering ill health as a result of these legal problems.
  • Small businesses with BAME and disabled business owners-managers, were more likely to experience problems.

Engagement with legal service providers remains limited

  • While there was a significant increase in the proportion of small businesses doing nothing when experiencing a problem (10%), the proportion adopting strategies including handling alone (50%) or using an advisor (24%) changed little between 2013 and 2017.
  • Less than one in 10 either employed in-house lawyers or had a retainer with an external provider. When advice was sought, accountants were consulted more often than lawyers.
  • In 2017, for those that did use a lawyer, 22% shopped around for a provider, and 50% found it easy to compare different providers.
  • Legal proceedings and court or tribunal use was at a similar level to online dispute resolution, just 4-6% of problems involved courts or tribunals in some way compared to 5% of problems which used online dispute resolution in 2017.

Views on cost effectiveness of lawyers have not improved

  • Just 11% of small businesses agreed that lawyers provide a cost effective means to resolve legal issues, this was significantly down from 14% in 2015. As in 2015, almost 50% of respondents strongly agreed or agreed with the statement that they use legal service providers as a last resort to solve business problems.
  • Satisfaction that law and regulation provide a fair trading environment increased from 30% in 2013 to 44% in 2017.

The full report, summaries and datasets are available here: