The Hidden Legal Risks of Using AI in Your Business

Artificial Intelligence is transforming how entrepreneurs get to do business. From automating content creation, providing ideas, writing emails, AI tools can be a game-changer for efficiency and creativity. But with the dawn of a new tech era, there’s also a whole set of legal risks that many business owners are unaware of.

If you’re using AI tools like ChatGPT, it’s critical to understand where the legal boundaries lie. Here's what every entrepreneur needs to know about using AI safely and responsibly.

1. AI-Generated Content Isn’t Automatically Free to Use

It’s a common misconception that AI-generated content is royalty-free and safe to publish as-is. In reality, the situation is much more complex. Lots of AI tools are trained using copyrighted materials, and depending on the source data and how the content is generated, publishing it without scrutiny could expose you to copyright infringement or data protection breaches. Just because you would never take the work of someone else’s and feed it into AI, it doesn’t mean that others wouldn’t.

Remember it won’t matter that you didn’t intend to copy someone else’s work, you may still be held liable for copyright infringement if you’re using someone else’s IP. That’s why it's essential to understand what rights (if any) the AI platform grants you for use of the output generated by the AI tool.

2. Copyright Ownership of AI-Generated Logos Is Unclear

If an AI tool designs your business logo, you don’t own it. Copyright law in the UK and the US requires a human creator in order for copyright protection to exist. If a logo is created solely by a machine, there may be no valid copyright for you at all.

This ambiguity means that someone else could potentially reuse or even register a very similar logo, and you may have no legal ground to stop them. To protect your brand identity, it’s important to work with a designer or consult a legal expert to ensure your logo is original, legally protected, and truly yours.

3. You Are Legally Responsible for What Your AI Says

Many businesses are integrating AI-powered chatbots and agents into their customer service systems. While these tools can be incredibly helpful, they can also say things that are misleading, inappropriate, discriminatory or just wrong.

If your chatbot causes harm it’s not the AI tool that faces legal consequences; it’s you, as the business owner. Under existing laws, AI tools cannot be held accountable in court. Any misstatements or offenses caused by your chatbot fall under your responsibility. That means it’s essential to monitor and test your AI tools regularly and have clear disclaimers and policies in place.

4. AI Is Not a Substitute for Legal Advice

Many AI platforms can generate legal documents such as contracts, NDAs, or terms of service. While these tools can save time, they cannot guarantee legal compliance or industry-specific accuracy. AI is not trained to apply current laws or case-specific nuances and it’s also usually pretty out of date.

I’ve been testing contracts generated by AI. Last week someone used a brilliant prompt to generate a collaboration agreement. The AI generated contract failed to include clear terms on what each party was actually meant to be doing. There were terms covering this but they didn’t get to the heart of what was needed. Nor did the contract include obvious things like whether recordings could be repackaged or repurposed. It totally missed clauses around fees, promotion, disassociation or restrictions on similar competing collaborations. 

A contract generated by AI may leave out critical clauses or use language that’s vague or unenforceable. Relying on these documents without a legal review could leave you exposed. To be legally safe, always have important documents reviewed by a qualified lawyer, especially if they're being used to form business relationships or handle sensitive matters. 

5. AI Tools Don’t Guarantee GDPR Compliance

If you’re using AI to write your website’s privacy policy, it's worth knowing that most AI tools aren’t trained on specific data protection laws like the UK GDPR, which is pretty HUGE gap. The GDPR requires very specific language, disclosures, and data-handling procedures that AI may overlook.

Even if the policy sounds professional, it might not cover the legal requirements necessary for compliance. Non-compliance can lead to significant fines. When it comes to data privacy, it's best to use legally approved templates or have your policies reviewed by someone who understands the regulatory landscape.

6. Uploading Client Data Into AI Tools Could Breach Data Laws

AI tools are often cloud-based and powered by third-party providers. If you upload sensitive or confidential client data into these platforms without understanding their data handling policies, you could unknowingly violate data protection laws.

Some AI tools store input data to improve performance or retain it for further training. If you haven’t secured client consent or if the tool lacks appropriate safeguards, you may be putting your clients at risk. Always check whether the platform is GDPR-compliant and never share identifiable or sensitive information without appropriate controls in place.

Final Thoughts: Is Your Business AI-Legally Protected?

As an entrepreneur, embracing AI can give you a competitive edge, but only if it’s done responsibly. Most business owners aren't fully aware of the legal implications of using AI-generated content, tools, or advice. Unfortunately, what you don’t know can cost you — in time, money, and reputation.

If you’ve found yourself wondering whether you’re really covered, it’s time to get clarity. My AI Legal Toolkit is designed specifically for small business owners and entrepreneurs who want to use AI with confidence and protect their business in the process.

Learn how to:

• Legally use AI-generated content and designs
  
• Avoid copyright and data protection pitfalls
  
• Ensure GDPR compliance 

The AI Legal Toolkit costs less than £100 and includes a GDPR compliant privacy statement template and an AI Policy template. Plus, short, easy-to-follow training videos explaining the legal context and risks.

Like all of our products, whenever we update it, you get access to the latest version for free.

Grab the toolkit:
https://www.lucylegal.co.uk/ai-legal-toolkit

Using AI in your business doesn’t have to be risky, but it does have to be legal.