Legal Risks
Legal risk is an especially important case of unique risk in the United States, affecting companies of all sizes. First, a transaction on which one is relying may prove unenforceable in law. It may be a contract with a supplier, an insurance policy, or a regulation. Long-term supply contracts that seem to lock in a price may be difficult to enforce if the price moves significantly out of line with the market. The copyrights of publishers and musicians may be contested in the courts. Employment agreements can be challenged and often prove unenforceable in practice.
A second set of risks is exposure to lawsuits. There are many classes of suit that arise in the normal course of business. For the vast majority, the stakes are not material and are sometimes insurable. They arise from differences over contracts, auto and truck accidents, complaints against supervisors, and the like.
Collectively, these are an element of risk and an ongoing cost of business, but usually not a major concern for investors.