The thrill of being a business owner can be marred by the challenges and frustrations of legal liabilities surrounding your property, your products, your services, and your employees. Fighting a lawsuit takes a lot out of your company, as they are expensive, time-consuming, and emotionally draining. Small businesses can lose their reputation and their financial stability, with worst-case scenarios ending in business closure. Civil litigation against small and large businesses has gone up over 400% in the last two decades, so it isn’t really a question of “if” it happens but “when.” The experienced advice of business attorney Nick Oberheiden recommends following these practices to reduce the potential of a lawsuit brought against your company.
Choose to Incorporate Your Business
Even with the best efforts, you won’t always be able to prevent a lawsuit. There’s a reason things are called accidents. An employee might get injured while on the job, and your company could then be sued for lost wages. A vendor delivery supplies on your property may be hit by a falling shelve and sue for medical costs, damages, and lost work. Anytime someone files a lawsuit, your home, bank accounts, and any other assets you may have are open to a financial settlement collection. When you incorporate your business, you take the liability and place it solely with your business. Anything you own is safe from a potential lawsuit, with the suing party only able to sue for the financial resources associated with your company. If you operate out of your home, the settlement could only attack your business bank account and not your personal property. This is an important first step in securing your personal assets from legal action.
Purchase Comprehensive Insurance Protection
Though an insurance plan isn’t a protection from being sued, it does help with the cost of litigation and keeps your personal finances from bailing out the company resources. An insurance plan typically provides assistance with the cost of your legal defense, court fees, and will cover a settlement award up unto a certain amount. There are some policies that will include funding for brand management following a claim as well. Before you purchase a plan, do your homework on the range of liability policies offered.
Many businesses opt for a general liability insurance policy, which offers protection against an employee filing suit over an injury at work. However, you may also do business that relies on vehicle use, so a commercial automotive policy would be needed to address those concerns. Your business may deal with contracts or professional services where an act of negligence or an error could cost a client a lot of money. In this case, you would want to consider purchasing miscellaneous professional liability coverage. Work with an insurance broker that understands your industry and can identify the major risks associated with your operations.
Use Legal Contracts Whenever Possible
Before you enter into verbal agreements with vendors, partners, or big account clients, think again. Any business, regardless of the size, should always have an attorney draft a legal contract whenever working with another company or individual. If you end up being taken to court, a legal contract can help protect your interest. The contract should define and detail the services that your company will be providing, and these should be carefully explained to the customer or company. With legal documentation supporting what you have stated, you can show the court what was expected by either party during the agreement and transaction.
Keep Accurate and Current Records
A reputable business will pay attention to having accurate and current records on file at all times. With the technology available to business owners, you don’t have to wait to print out a paper copy of the contract and put it in the filing cabinet. You can use emails and software systems to keep records of when a transaction occurred or when a meeting was scheduled, but you can also keep records of all the documents issued to the customer or vendor. Any contact, whether a phone call or electronic, should be noted in the file as well. Don’t just keep good records when things go wrong. Having every interaction recorded can save a lot of time and provide good support in the event of client or vendor complaint. Always document what services or products have been agreed upon, stating the name of the other party and the date of the agreement. Consistent records can help build a solid defense in the event of a lawsuit.
Clearly Explain and Implement Company Policies and Procedures
As a business owner, you won’t be able to help every customer or deal with every transaction at once. You will need to rely on the work of your employees, but these individuals increase the risk of a lawsuit. Your company needs to have all workplace policies and procedures clearly stated in the employee handbook, thoroughly reviewed during employee onboarding, and acknowledged through a signature by each employee. This helps employees know the expectations and responsibilities associated with their job. It may not prevent a lawsuit, but it could help eliminate unnecessary errors.
Practice Honest and Ethical Behaviors
As an owner, you should strive to have your business operate ethically and honestly in every practice every day. A strong reputation in the community will go a long way, but this reputation should be built on moral principles that follow the rules. Be professional in each transaction and never jeopardize your reputation to earn an account or make a quick buck.
Lawsuits have become commonplace in the business world. With some careful attention to these areas and a proactive approach to ethical leadership and operations, you can reduce your risk of a suit being filed against your company.