How to Protect Your Business From a Lawsuit


The last thing you want to hear is that your business is being sued. Lawsuits can be costly in terms of money, time, reputation and the stress they cause for all involved. They've also been known to put some businesses out of business.

It's important to do everything you can to limit your risk of a lawsuit. These six tips may help protect you and your business.

1. Put Agreements in Writing – and Keep Accurate Records

Signed agreements and good record keeping can be a business life-saver, helping to resolve disputes and clarify the rights and duties of each party if you're sued.

An attorney can advise you on the types of formal contracts you need, such as employment contracts and general sales and supplier agreements, but you'll also want to capture important details for every business transaction. For example, record the services or products you'll provide, the price and delivery date, and retain related records, including emails and notes from phone conversations, in case a conflict arises.

2. Protect Your Reputation

Businesses run on reputation, so it's vital to bring integrity to all of your dealings with employees, customers, competitors and the community. If you say you are going to do something, do it. If you make a promise, keep it. Bending the rules or misrepresenting your business, products or capabilities could come back to haunt you in the form of general mistrust, lost business and potential lawsuits. Acting with honesty and integrity will help lay a foundation for your business to prosper.

3. Employ Sound Employment Practices

There are many state and federal laws that govern the workplace, laws regarding workplace harassment, discrimination or the privacy rights of your employees. Familiarity with and adherence to these laws is important. Employment Practices Liability insurance can help protect you if an employee claims you engaged in wrongful employment practices.

Be sure you recognize which laws apply to your business and learn about the requirements of each. Then create and enforce policies to ensure you are in compliance. A human resources consultant or employment lawyer can be a great advisor in this area.

4. Be Prepared with an Experienced Lawyer

When a legal issue comes up in your business, having a lawyer to consult with on important questions can prevent you from heading down the path to a lawsuit.

Look for a reputable lawyer with expertise in matters associated with the size of your business who can help you stay in compliance with the law and spot potential legal issues early. To keep costs down, you might consider a consulting arrangement where you do the legwork and the lawyer provides legal review or guidance.

5. Separate Your Personal Finances from Your Business

Many small businesses operate as sole proprietorships. This may be the easiest and least costly way to set up and run a business, but it comes with what some might consider a significant disadvantage: as the owner, you are personally liable in the event of a lawsuit.

Structuring your business as a limited liability company (LLC) or corporation may be a protective measure that can separate your personal assets from any liability-related lawsuits to your business. You should explore the benefits of this type of structure with your legal advisor.

6. Be Aware of Your Insurance Coverage Needs

Another way to reduce the financial impact of a lawsuit is with insurance. General Liability Insurance, typically part of a Business Owners Policy, or BOP, can cover many risks for small businesses, including claims related to bodily injury (for example, slips and falls), property damage, and advertising injury (for example, copyright infringement in your advertisement). Commercial Auto Insurance can help protect your business and your employees against liability for driving-related accidents, and protect your business autos for physical damage.

Depending on your business, you may also need more specialized insurance. For example, if your business offers professional advice or services to clients, Professional Liability insurance can help cover the cost to defend your business if a client files a lawsuit claiming damages resulting from an error or omission in providing your services.

You may also want to consider Umbrella Insurance, which provides an additional layer of financial protection over and above the coverage limits of your primary liability policies that can help defend against large, unexpected covered losses.

If you do have a claim, be sure to report it to your insurance company promptly. Early reporting may help resolve your claim quickly and avoid lengthy legal entanglements that can cost you time, money and possibly your reputation. Be sure to preserve records and evidence that might be necessary to help defend your case, and even help prevent further damage.

Find an agent today to learn more about specific coverages that can help you protect your business.

This information is not intended to constitute legal advice – the information, content and materials referenced above are for general informational purposes only.

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