14 - AI for Small Businesses: Legal and Ethical Considerations You Can’t Ignore
Artifical Intelligence (AI) is no longer a futuristic tool, it’s changing the way small businesses and solopreneurs work every day. From creating marketing content to assisting with client communications, AI can save time, improve efficiency, and give your business a competitive edge.
If growing a small business is your goal, using AI tools can be a defining decision that helps you accomplish more with fewer resources than your competitors. Now I know AI tools still have a long way to go, but I firmly believe that AI tools can be a game-changer when used for repetitive, time-consuming tasks that keep you from doing your highest-value work.
My take is that entrepreneurs who learn how to leverage AI will:
Be positioned to deliver faster without compromising quality
May expand their capabilities without hiring a full team
Be able to compete with businesses 3x, 5x, or 10x their size
Free up solopreneurs time for building relationships and revenue
Small businesses have always been the innovators: scrappy, adaptive, quick to try something new. AI is the next small-business advantage.
The key is using AI with intention. Intention means having a good understanding of the ethical and legal risks of incorporating AI into your business workflow. The alternative, using AI without understanding its legal and ethical implications can expose your business to risk.
Why AI is Here to Stay for Small Businesses
AI tools are becoming essential for modern workflows. Ignoring them isn’t a long-term strategy. Instead, the smartest approach is to integrate AI strategically and responsibly:
Use AI to streamline repetitive tasks, like drafting emails, creating social media posts, or summarizing reports.
Leverage AI for idea generation, research, or planning, but don’t rely on it as a substitute for human judgment.
Treat AI as a tool, not a replacement, allowing you to focus on high-value business decisions.
Ethical Considerations When Using AI
Even small businesses need to consider ethical guidelines when using AI:
Accuracy is crucial – AI can produce content that appears correct but contains errors. Always review marketing copy, client communications, or AI-generated graphics before publishing.
Transparency matters – If you or your contractors use AI, disclose it where appropriate. Misleading clients about human involvement or source material can harm your reputation.
Internal AI policies – Even as a solopreneur, outline simple guidelines: what tasks AI can assist with, and what information should never be shared with AI platforms.
Learning from Large Companies: The Rise of AI Compliance Officers
Large companies are already treating AI not just as technology, but as a strategic governance issue, hiring dedicated legal teams or designating roles such as “AI Compliance Officer” within their in-house counsel departments. According to a recent article from Bloomberg Law, these companies are developing internal AI governance frameworks, conducting impact assessments, and ensuring that legal, technology, and business teams collaborate to oversee AI’s rollout across operations. What this signals is that managing AI isn’t just about what the tool can do, but about how it’s used, who has access, how data is handled, and how the business stays on the right side of evolving regulation.
Takeaway for small businesses:
You don’t need a full-time AI compliance officer to benefit from what large firms are doing, but you can adopt the same mindset. Start by treating AI integration with the same care you’d use for a new hire or service provider: audit what tools you use, define who handles sensitive data, double-check vendor practices, and record how decisions are made. In doing so, you’ll build a smaller-scale “governance framework” that protects your business while giving you the confidence to leverage AI.
Legal Considerations for Small Businesses
AI also comes with legal responsibilities:
Protect sensitive data – Avoid entering client information, trade secrets, or confidential material into AI tools that store or reuse data.
Respect intellectual property (IP) – Verify that AI-generated content doesn’t infringe on copyrighted works. When hiring freelancers or contractors, confirm how they use AI.
Clarify ownership in contracts – If you outsource AI-generated work, define who owns the content or design rights.
Verify outputs – If you are using AI to help draft or review contracts, marketing, or client documents, remember that you are ultimately responsible for accuracy. You remain legally responsible for anything your business publishes or delivers.
Real-World Examples Small Businesses Should Know
Sensitive Client Emails Written by AI
A medical clinic discovered that their administrative assistant had been using an AI tool to draft client communication, scheduling updates, follow-ups, even messages containing personal health details. The clinic now faces a costly internal review and must update its privacy protocols, because AI was used without oversight.
Takeaway: If your business handles sensitive data (health, legal, financial, or minors’ info), AI must be vetted like any other vendor. You need transparency and clear policies before any client data enters an AI tool.“Human-Crafted” Website Turns Out to Be AI-Generated
A small business paid a web designer who promised custom branding and copywriting. After launch, the owner discovered every page’s layout, copy, and image assets were generated by AI on the first draft, and some content was nearly identical to another company’s site.
Takeaway: Require transparency: Is the person you hired actually doing the work, or pressing “generate”? Your contracts should be clear about originality, authorship, and rights to content.New Hire Used AI for Product Designs — But Who Owns Them?
A retail brand brought on a junior designer who used AI tools to create graphics for a new apparel line. The manager later learned that many AI tools grant questionable ownership rights, and designs may not be protectable as intellectual property. Even worse, if the AI was trained on copyrighted artwork, the company could be accused of deriving from someone else’s style or material.Takeaway: Protectability matters. If your brand relies on IP, logos, product designs, packaging: your contracts and creative workflow must address originality, licensing, and ownership when AI is involved.
AI Use Red Flags for Small Business Owners
Even if you’re enthusiastic about leveraging AI tools, smart guardrails protect your business from expensive, and preventable, mistakes. Watch for these common red flags:
No disclosure from contractors or team members
If someone you hired uses AI behind the scenes, you may not actually own the work, or you could accidentally inherit legal risk.
Sensitive or regulated information fed into AI tools
Client communications, health or financial data, trade secrets, and internal documents shouldn’t go into AI platforms without vetting their privacy policies and data practices.
"Custom" work that looks suspiciously generic
Duplicate text or design elements created by AI can lead to copyright issues and SEO penalties.
IP that might not be protectable
If AI generates your branding, product designs, or creative assets, it may be unclear who legally owns the rights, which can hurt you later if you want to protect your brand or raise investment.
No usage policy in place
Without written guidelines, different team members (including freelancers) may adopt risky AI habits that you don’t discover until it’s too late.
Practical Tips for Ethical and Legal AI Use
Review all AI outputs before publishing or delivering them.
Set clear AI guidelines for your business: define what AI can do and what information is off-limits.
Ask vendors and freelancers about AI use to ensure compliance and transparency.
Protect client and business data by avoiding sensitive information in AI platforms.
Stay informed about AI regulations and laws, which are evolving rapidly.
Our Takeaways
AI can be a powerful tool for small businesses and solopreneurs, but only if used responsibly. Integrating AI with intention means reviewing outputs carefully, and following ethical and legal guidelines, so you can gain a competitive advantage while protecting your business from risk.
Think of AI like a new team member: understand its strengths, its limitations, and your obligations when using it. Done right, AI is not just safe, it’s a way to work smarter, serve clients better, and grow your business efficiently.
AI can absolutely level the playing field for small businesses, as long as legal, ethical, and privacy risks are managed up front. The goal isn’t to avoid AI, it’s to use it wisely, transparently, and in ways that protect the business you’re working hard to build.
If you’re ready to leverage AI without risking your business, let’s talk. I can help you create an AI use policy and review your legal exposure.
Mari Gutierrez is a business lawyer in Vancouver, BC, and the founder of Encino Law, a tech-forward virtual boutique law firm serving women entrepreneurs and small business owners across British Columbia. Mari is passionate about making the legal side of business more accessible and proactive. She believes contracts and legal systems should evolve with your business, not hold you back. Through approachable, values-aligned legal services, she helps founders leverage modern tools (including AI) responsibly, protect what they’re building, and grow with clarity and confidence.
