According to data by Statista, small companies spend around 1.24% of their revenue on legal disputes alone. In the US, the cost of litigation can range up to $150,000. That may not sound like much, but that amount could have been invested in other aspects of the business.
No business owner ever wants to get embroiled in legal disputes, but realistically, entrepreneurs may have to face one sooner or later. Fortunately, there are several ways to protect your businesses from the threat of lawsuits.
Have A Clear Separation Between You And The Business
Some entrepreneurs prefer to run and operate their businesses as sole proprietorships. While it does have its advantages, sole proprietorships can be problematic when the business is being sued. In the event of a lawsuit, the business owner’s assets (house and cars) can easily be attacked or attached in court.
It’s best to separate your business from yourself, so your assets are safe from being targeted by lawsuits. An effective way to do this is by incorporating your business. This protects your wealth and assets safe from any lawsuits.
Another way to separate your assets from the business is by establishing a trust. A trust is a legal entity that you can establish to own the company in your place. If your business gets sued, the only assets that can be attacked in a court of law are those held by the trust you created.
Be Mindful Of What You Say Or Do
A company’s image and reputation are essential components of success. That’s why owners and employees should always avoid conducting questionable or scandalous business. This includes:
- Providing defamatory statements
- Disregarding conflict of interests
- Making questionable deals with shady individuals or institutions
As the owner of your business, you are expected to represent the ideals from which your company is built. However, this should also apply to each of your employees. If an employee is linked to any shady business practices, they risk taking the entire business down with them.
Investing in employee training about proper business ethics can help everyone stay mindful of what they say and do.
You should also limit yourself from any conflicts of interest, especially those that can damage the integrity of your company. For example, publicly supporting or helping pass a local ordinance that benefits the company. This can be viewed negatively despite your good intentions.
Hire A Reliable Business Attorney
Having a competent attorney as legal counsel is an essential part of running a successful business. There will always be situations where your company will need legal advice, especially if there’s a lawsuit involved. Having an attorney on-call can make a huge difference.
When it comes to hiring an attorney, it’s best to get someone knowledgeable about the laws and customs of the city or state your business is operating in. Professional references from other business owners are a great way to find a competent attorney. You can also rely on professional organizations like the local chamber of commerce for references and leads.
There will also be situations where you may need to hire specific lawyers for specific conditions. For example, if your business is going through legal issues with the Internal Revenue Service, it’s wise to hire a tax attorney.
Get Your Business Insured
It doesn’t matter if your company deals in real estate or leased equipment inspections. It would be best if you had your business insured. Every business should have at least some form of liability insurance.
General liability insurance can help financially cover situations like customer accidents and even expensive litigation costs. Without insurance, you will be forced to deal with the costs yourself, which can be too much even for successful companies.
If your company has a formal board of directors, it’s also wise to invest in a Directors and Officers Liability Insurance (D&O). This should help secure their personal assets in case there’s a major lawsuit against the company.
Aside from getting insurance, you can also place a liability protection clause into contracts. For example, if an accident or an act of nature prevents you from fulfilling an agreement, the clause will state that you are not liable due to factors beyond your control. Work with your lawyer on how you can add these clauses to your contracts.
As a business owner, you are ultimately responsible for taking care of your company and assets during a lawsuit. Keeping these three tips in mind increases your chances of avoiding a case and lessening their impact on your business.
It’s also worth noting the best thing you can do in the event of a lawsuit will always be to seek legal advice from competent lawyers.