MSPs and the Law

The business outlook for MSPs in 2012 is good; more and more businesses are realizing the benefits of the integrated solutions delivered by MSPs and the savings in both monetary cost and stress/frustration that come with turning over the management of multiple services to a specialist. That’s the good news – but every silver lining has its cloud. In this case, we’re not talking about the nebulous online environment but the often-cloudy (or even downright murky) world of legal requirements, restrictions and potential hazards through which all businesses increasingly must navigate.

The IT industry has been relatively free of government oversight for a long time (at least in comparison to many others) but that’s changing, and it’s changing fast. Legislation aimed directly at the use of computers and the Internet, as well as statutes and court decisions that target all businesses, make it more and more difficult to be sure that you’re in compliance with all the rules and regulations. A recent survey showed that the top concern of small business owners for 2012 is legal issues.


Regulatory compliance is a hot topic today, and it’s essential that, if you work in a vertical space subject to regulatory control (health care, finance, etc.), you be intimately familiar with the statutory or administrative requirements regarding the handling of particular types of data (HIPAA, GLB, SOX, PCI).

Tax law

Tax issues comprise one of the most pressing legal issues for MSPs and other businesses. Tax planning starts with choosing your business structure, but this is something that can also be changed as your business grows and becomes more complex. There are tax advantages and disadvantages to incorporation vs. operating as a limited liability company (LLC) or limited liability partnership (LLP), a limited partnership or a sole proprietor. These benefits can vary depending on your state or country, as well, so it’s imperative to use a CPA or tax attorney to handle your tax issues. This is a case where a DIY approach that might appear to save a few thousand dollars could end up costing you tens or hundreds of thousands. Just a glance at the IRS Small Business and Self-Employed Tax Center website indicates how very complex the tax laws are.

Employment law

As your business grows and you hire more employees and/or contract with consultants, your business is exposed to potential labor law issues. The first step is to have a clear understanding of the difference between employees and independent contractors and classify those who do work for you properly. The second step is to be aware of the many laws governing the employer-employee relationship, including but not limited to those pertaining to overtime, minimum wage, hiring practices, discrimination, work environment (including sexual harassment/hostile workplace), accessibility, and so forth. If your business is not yet at the point where you can afford a full time trained human resources director, it’s imperative that you or someone else in management educate yourself and consult an expert when in doubt.

Intellectual property law

Another big legal issue for MSPs pertains to the protection of your IP (intellectual property), as well as the IP of clients whose data passes through or is stored on your network. Again, this is a complex area of law and trying to pick your way through the tangle of state and federal laws pertaining to copyright, trademark, patents and trade secrets is a daunting task. Not only should you not attempt to do it yourself; you also shouldn’t rely on your friendly general practice attorney to handle it for you. You need a specialist.

Contract law

An MSP enters into many legally binding contracts – with customers, with independent contracts, with vendors, and in some cases with employees. You might be able to find “boilerplate” contract templates rather than paying an attorney to draw up every contract. Or the other party with which you’re doing business might provide the contract. In either of these cases, unless it is the simplest of agreements with absolute minimal risk (and even then, the unexpected can happen), you should at least have an attorney look them over to catch any “gotchas” – before they “get you.”


As MSPs grow and become more high profile, the companies’ exposure to legal problems grows with them. It pays to be prepared, and to head off potential problems that could make or break your business, financially, by letting an expert handle this area – just as your customers benefit from letting an expert (you) handle their managed services.

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