How to Protect Your Small Business from Litigation: 6 Ways

When you are running a small business, one of the biggest threats you can face is litigation. As a small business owner, it is just not possible for you to know everything, and that’s where many business owners end up getting into trouble.

Protection against small business litigations

So, if you have a small business and want to protect it from litigation, here are a few things you should do:

1. Watch What You Say or Do

The image of your business is critical to survival. Both you, as the owner and your employees, should be very careful when making public announcements or carrying out any business that may seem questionable. Be very careful what you say, as statements can easily be construed as slanderous or even libelous. You should also need to ensure that you are not involved in any conflict of interest issues.

So, for example, if you are an upstanding citizen of your community and get elected to the town council and you assist in passing an ordinance that could lead to your business benefitting, then it would be a conflict of interest. This situation could, therefore, lead you to be sued.

2. Hire an Attorney

The law is convoluted and complicated, and it isn’t possible for you as a business owner to know all the ins and outs related to legalities – unless you are a business lawyer, that is. Thus, it is in your best interest to hire a competent attorney to help you navigate the frequently tricky legal nuances involved in running a business. Now, the question of the kind of attorney you should hire arises.

Many types of attorneys could help you with your business, but one that would be most appropriate for your small business could be an employment attorney. This is because the majority of legal issues that most small business owners face is related to employment.

3. Segregate Your Personal Finances From Your Business Finances

A lot of small business owners are sole proprietors, and because of this, their assets (such as their cars or homes) are linked to their companies. In the event of being sued, it becomes possible for the litigators to attack not just their business, but also their assets.

It is wise to separate your personal finances from that of your business. Make your business an entirely separate entity. This can be done either by having a trust own your business or incorporating your business. This way, your home, as well as your personal wealth, will be safe if your business is being sued.

Insurance is life buoy for your life
photo credit: L’imaGiraphe / Flickr

4. Get Insured

Small business owners don’t usually understand what a huge safety net personal liability insurance can be for them. This way, if a customer sues you for getting injured in your place of business, or for not living up to a contracted agreement, then you are protected.

5. Watertight Contracts

If you are entering into a contract with someone, ensure it is one that also includes clauses that protect you and your business’s interests. If there are circumstances that are beyond your control (such as a natural disaster, a supplier not meeting their commitment, etc.), then there should be clauses in the contract agreement that prevent your client from suing you for breach of contract.

6. Protect Your Data

We live in a world where technology and the internet drive everything. However, these are systems that can and will (at some point) breakdown. In case your business is hit by a technology system failure that could impact your business operations or contractual obligations. You need to ensure that there is a backup in place.