It is not uncommon for a business owner to face a lawsuit at some point in the life of the company.
Small businesses are more at risk than large companies for damaging financial consequences resulting from litigation. However, there are steps you can take to protect yourself and your business.
Understand personal risk
Litigation could put your personal income at risk. If you become the defendant in a lawsuit, the court will perform an analysis of your business to determine whether you are keeping proper payroll and inventory records, filing your tax returns properly and separating your business and personal bank accounts. The court can also allow the opposing party to hold you personally liable for a wrongful act.
Weigh insurance options
Certain kinds of insurance can help protect your business. Examples are Employment Practices Liability Insurance, Directors and Officers Insurance, Environmental Insurance and Commercial General Liability Insurance.
Prepare a litigation hold
If a lawsuit develops, you must place a “litigation hold” on any information that might pertain to the matter. Secure hard copies of documents related to the claim as well as any digital information. If the court finds that pertinent information has been deleted or destroyed, it can impose penalties harmful to your business.
Seek professional help
A lawsuit could come from many directions. It might be a claim for breach of contract or arise from a dispute with shareholders or with a competitor. While you cannot anticipate every situation that could develop, advance planning is essential. Part of that planning is to seek legal counsel as part of the strategy for protecting yourself and your business.