It is your responsibility as a business owner to take all necessary precautions to minimize risk and maintain business operations in order to protect your small business from legal action. But how can you prevent a lawsuit in order to keep your business running smoothly?
While there are no guarantees in life, there are five things you can do right now to safeguard your business from future lawsuits.
Important
It is your duty as a business owner to take all reasonable steps to reduce risk and maintain business operations.
A tiny business should keep an attorney on retainer.
Owners and their staff should refrain from making defamatory statements in public or engaging in dubious business practices.
Incorporating your company or placing it in a trust can help safeguard your personal assets in the event that your company is sued.
All companies should have the right liability insurance and take precautions to guard their computer systems against intrusion.
1Think Before You Say and Do
It's important to maintain your company's image. That's one reason why business owners and their staff ought to refrain from making any declarations in public or carrying on any activities that can be viewed as dubious. That includes words that are defamatory or could be slanderous, as well as refraining from doing business with dishonest people.
Working with a group of people known for questionable business activities may not seem worrisome because you are confident in the integrity of your company, but if they are revealed, your company's name may be associated with them as a result of the aftermath.
You should also make an effort to minimize any potential conflicts of interest and steer clear of circumstances that might lead to them. These kinds of situations might compromise your credibility as a business owner and get you into legal trouble.
Even if you didn't consider your company's interests when making your decision, serving on the town council and supporting the passage of a law that helps your business would be a conflict of interest.
2Engage a qualified attorney
Interview attorneys before starting your business so that you have legal representation available. Before making a decision or recommending what to do if you have been sued, you may need legal counsel.
When necessary, it's a good idea to hire a lawyer who is knowledgeable about the regional laws and customs in the region where the firm works. It might make sense to hire a tax attorney if your business expects legal problems from the Internal Revenue Service (IRS) or a state department of taxation.
A great lawyer can be found on a variety of websites. You might find it helpful to ask other business owners for their recommendations of qualified professionals or to get in touch with any professional organizations that the company might be a part of (like the regional chamber of commerce or any sector association).
You could always try cold calling (and conducting interviews) from the phone directory, of course.
3Put yourself outside of your company
As sole proprietorships, many business owners own and run their enterprises. Because the owner's personal assets (such as automobiles or a home, for example) are relatively simple to challenge or seize in court, this could be an issue if the company were to be sued.
Owning the business through a trust is one strategy to reduce the likelihood that an owner's personal assets will be the subject of a lawsuit. A trust is a legal entity that, in most situations, files its own tax return and has the ability to own a variety of assets, including real estate, corporations, cash, and securities.
In most circumstances, the only assets that can be challenged or attached in a court of law are those that are in the trust itself if a properly constituted trust controls a business and it is sued.
Another way to keep your personal funds separate from those of your business is to incorporate them. This protects your home and personal assets from attack, even if you lose your business as a result of a judgment.
The drawback of incorporation? The additional rules, reports, and taxes that the government mandates on corporations must be understood and maintained.
4Protect Yourself with insurance
Every business should purchase liability insurance in the event that, for example, a client slips and falls on your property.
To make sure their company is safeguarded in the event that a client or customer accuses the owner of making an error or failing to uphold a contract, certain professions, such as insurance agents and consultants, should also think about acquiring errors and omissions insurance (E&O).
*Pro tip
If the business has a formal board of directors, getting directors and officers (D&O) liability insurance may also be a good idea to safeguard the directors' private assets in the event of a more serious lawsuit against the corporation.
You can include liability insurance in your contracts in addition to buying insurance. You should specify in the contract that you are not responsible for incomplete work caused by these variables if a natural disaster, a dispute with a supplier, or some other uncontrollable event could make it difficult for you to execute the terms of the agreement and expose you to legal action.
You can prevent the need for legal advice later on in your business venture by consulting with your lawyer about the potential clauses and legalese you'll need in your employment contracts.
5Safeguard Your Files
Nowadays, the majority of organizations rely heavily on computers, so it is important to emphasize the security of your computer system. Businesses must load and activate the most recent versions of antivirus and other security software on their computers.
A business might not be able to complete some contracted work if a virus brought down a computer system. Important documents could also be stolen or misplaced, which could result in legal action from customers or suppliers.
Make sure you have a set of backup files available so you can access them in the case of a serious technological failure. This can entail creating daily, weekly, or even monthly backups and informing your clients about them.
If you keep these documents on-site, keep them in a fireproof safe. Or, to assure the ongoing security of your business, keep them off-site. Your backups would be secure even if the worst were to happen to the rest of your materials and supplies.
Will your firm be able to run in the event of a catastrophe like a hurricane, fire, or, as we've already learned, a pandemic? If the business doesn't run, it might not be able to fulfil certain contractual commitments or adhere to other legal or financial arrangements.
In order to make it a little bit simpler for your business to function when the forces of nature throw a curveball, think about obtaining alternative work sites, portable generators, call trees, and/or ways to have workers work remotely.
Business lawsuit Frequently Asked Questions
- How many small businesses are actually sued?
Every year, between 36% and 53% of small firms are sued, and 43% are threatened with legal action. 90% of companies are predicted to face legal action at least once throughout their existence.
- What Do I Do If My Company Is Lawfully Sued?
You should initially get in touch with a lawyer and your insurance provider if your firm is being sued. It is cautioned against acting as your own attorney, making your own arguments, or ignoring the complaint entirely. You will be assisted in the procedure by a knowledgeable attorney in the area.
What Business Has Been the Subject of the Largest Lawsuit?
One of the biggest cases filed against a company has been the one against the cigarette industry. A $206 billion settlement was reached between major cigarette corporations like Phillip Morris and RJ Reynolds in 1998.
This included, among other things, paying for medical expenses linked to ailments brought on by smoking.
Conclusion
In the event of a lawsuit, business owners are responsible for defending both their organizations and their personal assets. After taking these five steps, your company should be better equipped to fend off legal action or face it head-on and emerge undamaged.
