More than a third of small businesses in England and Wales, 36%, had at least one legal issue in the previous year, the Legal Services Board said on Monday.
Nearly one in five businesses reported that legal problems had prevented or delayed investment in innovation and growth.
The LSB asked government, legal services regulators, business support organisations, lawyers and law firms to focus on the legal problems with the greatest effect on growth, particularly late payments, and to help small businesses spot problems early and find support.
It also called for legal advice to be made easier to find through technology and improved signposting.
The fifth Small Business Legal Needs Survey is based on 10,352 businesses, from sole traders to those with 49 staff. They recorded 29,014 legal issues, an average of 2.8 per business, which the LSB said suggests around 16 million issues a year across England and Wales. The precise share was 35.9%.
Four in ten legal issues resulted in costs above £5,000, and one in ten in costs above £15,000, according to the LSB.
Around one in nine businesses (11.2%) had a legal need requiring professional support. Just 1.7% had that need resolved, while 9.4% remained unmet.
Only 10% of small businesses reported having internal legal capability.
Accountants and tax advisers remained the most common source of advice on legal problems, ahead of solicitors and barristers.
The previous wave, run between July and September 2021, found that a third (32%) of small businesses had at least one legal issue in the 12 months before the survey. Accountants were then the most common source of professional help (22%), followed by solicitors (16%).
Richard Orpin, the LSB’s chief executive, said:
“Our findings show that legal problems are business problems. They can hold back growth, delay investment and prevent businesses from reaching their full potential.”
Late payment was identified as one of the most damaging issues. Of affected businesses, 35% spent significant time and resources chasing payment, and 28% had difficulty paying their own bills as a result.
Emma Jones, the Small Business Commissioner, said the results showed further evidence of the importance of tackling poor payment practices. She said she was pleased the government was taking the Commercial Payments Bill through Parliament “to be paid quickly, without delay.”
The Office of the Small Business Commissioner said the government’s response to its autumn 2025 consultation on late payment included new powers for the Commissioner to issue financial penalties to persistent late payers and to settle disputes out of court.
The response also included a 60-day cap on payment terms for large firms paying smaller suppliers, and mandatory statutory interest on late payments set at 8% above the Bank of England base rate.
The Commissioner’s office said late payments cost the UK economy almost £11bn a year, cause 38 business closures a day and lead owners to spend an average of 86 hours chasing debt.
Tina McKenzie, national chair of the Federation of Small Businesses, said small firms find legal issues extremely intimidating and often lack the resources to navigate the legal system with confidence. She said “that’s why we now provide free 24/7 legal advice to all our members.”
David Bharier, deputy director of the British Chambers of Commerce, said the cost burden facing small and medium-sized enterprises had grown substantially in the last decade, and that “our data shows just 17% of firms are planning to increase investment.”
He said legal disputes and late payments add to that burden, and that with further obligations on the way it was essential that policy supported investment rather than constrained it.