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Tips for Protecting Your Small Business Against Litigation


Starting a small business is an exciting opportunity, but it can also be frustrating when you realize just how much you suddenly have on your plate. In addition to those new duties and responsibilities, you also have to take the time to consider your legal obligations. If you're not careful, you may end up being caught unprepared, when an unexpected lawsuit comes your way.

Make Sure You're Insured

Obtaining general liability insurance is one of the smartest things you can do for your business and, depending on how you financed your business, it may also be a necessity. The importance of maintaining liability coverage cannot be understated. Just some of the situations in which liability coverage can protect your business include:

  • Slip and fall accidents

  • Product liability

  • Data breaches

Additionally, your insurer will take an active part in responding to claims by investigating each incident. They will offer settlements to those seeking compensation, which means the cost of these claims won't come directly out of your business expenses. Maintaining adequate insurance can help you avoid lengthy and costly civil court cases, as well.

Consider Retaining an Attorney

While hiring a lawyer at the time of a legal conflict can still benefit you, it may save time and money to keep an attorney on retainer. This will ensure your attorney knows the details of your business and is familiar with your personnel, colleagues, and competitors. Maintaining a working relationship with one lawyer, who specializes in servicing small business owners can even help you avoid situations in which you might be held liable. When you need to terminate an employee or resolve a conflict with a customer, going to your lawyer for advice can save you money and frustration.

Maintain Scrupulous Records of Your Business Communications

Regardless of how you communicate, every communication should be documented and accurate records should be maintained, regarding the nature of those communications. Never delete emails, text messages, or other forms of written communication. You should also make sure your business associates are aware that you may record phone calls, so you can also maintain records of those conversations. There are professionals available that will work for businesses that need transcription services performed, so you can produce printed copies of phone call conversations. Maintaining meticulous records can ensure you'll have physical evidence of your communications if they ever become a key point in a civil case.

Operate Your Business Through a Trust

In most cases, small business owners operate as sole proprietors, but this can expose them to unnecessary risks. If you are sued as a sole proprietor, your personal assets, such as your home and personal savings, will be at risk, as well as your business assets. To avoid this situation, establish a trust and place ownership of the business in the trust. This ensures only the assets owned by the trust and used to operate the business will be at risk of loss in a lawsuit. The trust files taxes for the business, manages assets, pays debts, and essentially acts as a buffer, protecting you from litigation, personally.

These tips can help you protect yourself and your business from litigation. While you may still be sued by a customer, business partner, or other associates, these steps can help minimize your losses. While you may never be named in a lawsuit, being diligent in protecting yourself can ensure you'll be prepared, if your business does become embroiled in legal trouble.


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