As a business owner, you are probably more concerned with making sales and cash flow rather than getting sued. However, lawsuits can cripple and even lead to the closure of small businesses.
Limiting the risk of a lawsuit ensures business continuity. While it is impossible to control all eventualities, there are several steps you can take to significantly decrease the chances of your business getting sued.
Put All Agreements in Writing
Small businesses can have many “hand-shake” agreements and informal deals. However, signed agreements can help you to clarify the duties and rights of each party involved. They also help you meet your end of the deal.
You can use different contracts to help you keep your agreements in writing. These include general sales contracts, supplier agreements, and employment contracts. It is critical to capture all the important details of each agreement.
For instance, record the goods sold, quantity, price, and delivery date in sales agreements. Attach emails, phone call records, receipts, or invoices. These are invaluable in proving your case if there is a dispute.
Once you have made a business agreement, always hold up your end of the bargain. Ensure you deliver goods and services as you stated in writing. Honesty and good business ethics protect you from lawsuits and promote your reliability.
Protect Your Business’ Image
Recently, many businesses have found themselves in trouble for public statements and announcements deemed libelous or slanderous. As a small business owner, avoid making public statements or conducting questionable business.
This includes conducting business with any individuals known for unscrupulous dealings. Even if your business practices are above reproach, if they are exposed, your brand could be linked to them, causing serious backlash and even lawsuits.
It is also critical to include in your employee contracts that they should limit conflict of interest and avoid putting themselves in a position to compromise your business. Such occurrences can damage your business integrity and land you in legal trouble.
For instance, as a business owner, you cannot be in a public or government organization that passes laws that benefit your business. Even if you had good intentions, this is a conflict of interest.
Separate Your Personal Life from The Business
Most small businesses operate as sole proprietorships. If the company is sued, your personal assets, such as a home and cars, can easily be attached to the suit, causing significant losses.
Consider setting up your business under a trust to limit the possibility of losing your personal assets. A trust files its own taxes and can own businesses, securities, cash, and other assets. In case of a lawsuit, only assets under the trust may be attacked.
You can also use incorporation to separate your business assets from your personal finances. This ensures your personal wealth is safe even if you lose a lawsuit.
However, incorporation usually involves keeping up with changing laws, taxes, reports, and other government requirements, which can be complex.
Use Sound Employee Policies
Employee rights are protected under state and federal laws governing the workplace with regard to discrimination, harassment, or the right to privacy. As a small business owner, you must familiarize yourself with these laws and make sure your policies are compliant.
Learn which employment laws apply to your business and apply them appropriately. Create and enforce sound employee practices and policies that comply with employment laws. Consider contracting an employment lawyer or human resource consultant for guidance.
You can also use Employment Practices Liability Insurance to protect your business if you are accused of wrongful employment practices.
Hire a Competent Small Business Attorney
We recommend having an experienced small business attorney on retainer even if you are not getting sued.
Retain a lawyer that is familiar with local business laws and customs. They can help you navigate various challenges, including tax, employment laws, and even help you take the necessary steps to avoid getting sued.
There are numerous resources to help you find a competent business lawyer, including professional references and local business directories. To save costs, consider hiring an attorney on a consultation basis, where they provide legal guidance and reviews when needed.
Insure Your Business
Various insurance policies available to small businesses can help reduce a lawsuit’s financial impact. For instance, general liability insurance can help you cover several claims, including bodily injury, advertising injury, such as copyright infringement, and property damage.
If your business has a vehicle, commercial auto insurance is a good way to protect your business and employees against driving-related claims.
There are also more specialized policies depending on your business such as professional liability insurance that covers claims against damages caused by omissions for service providers.
What Should You Do If Your Business is Sued?
First, contact your attorney and the insurance company. We do not recommend representing or even responding to the suit yourself. It is also important that you do not ignore the complaint. An experienced lawyer will guide you on how to respond and protect your interests.
You are ultimately responsible for protecting your small business against lawsuits. Reporting any claims to your lawyer and insurance promptly improves your chances of getting a more favorable outcome.
Ignoring a complaint against your business can lead to time-consuming discussions, waste of finances and resources, damaged reputation, and loss of sales. However, with the tips listed above, you can avoid lawsuits and even come out of the dispute stronger.