Before you read this blog, it is essential that you understand one key thing: there is no way to completely eliminate your company’s risk of getting sued. We live in a free, some might say “litigious” society, where anyone can sue for nearly any reason.
If you go into business, particularly if you own more than one business, you will probably get sued at some point. Even seemingly ridiculous suits can get their day in court, so you should always prepare your company as if you expect to face a lawsuit.
The best you can hope to do is to prepare your company for the worst, in a manner which will minimize your risk, reduce the incentive for others to file a lawsuit, and give you the best chances of winning when a suit is filed.
Here are five useful tips to help your company prepare for the inevitability of getting sued.
Hire General Counsel
Even if you cannot afford in-house counsel, you should seek to establish a relationship with an attorney who can help you with all of your business legal needs, learn the ins and outs of your company, and be prepared to provide the best and most efficient defense when a lawsuit arises. Hiring knowledgeable General Counsel for your company, such as the attorneys of Phillips & Muir, will mean you won’t have to waste any time in putting forth the best possible defense when you are faced with a lawsuit. [1]
Employee handbook
Many businesses prepare for the threat of lawsuits from outside sources, but neglect the potential for lawsuits coming from within the company. Your employees can be a source of potential lawsuits, so it is vital that you have a well-defined and extensive employee handbook that explicitly outlines your company’s policies and expectations when it comes to your employees. Your handbook should also be consistently updated. If your handbook is properly written, and your employees have acknowledge they received it in writing, you should have a strong defense against many lawsuits that can be brought by your employees. [2]
Incorporation
Nobody wants their personal assets and finances at stake in a litigation if the business is faced with a lawsuit. By incorporating as a corporation or LLC, you will have a veil of liability protection between your personal life and your company, and vice versa. Ensure that you are always compliant with the requirements of maintaining your business entity of choice and separating it from your personal finances so as to avoid piercing that corporate veil and putting your personal assets at risk.
Liability insurance
If you take the proper precautions, you can certainly minimize your risk of losing any lawsuits that are brought against your company, but you can never guarantee victory. It may be worth it for your business to maintain liability insurance that will pay the costs of the defense of a lawsuit and maybe settlement. It can be more expensive to fight a case that you know you can win than it would be to settle. However, you should always compare your company’s risk of potential lawsuits to the cost of liability insurance and the reward of having the associated costs paid for if you lose a lawsuit. A business attorney can help you analyze your company’s liability insurance needs. [3]
Use contracts whenever possible
When correctly tailored to your business, a contract can save you a lot of money in litigation later. We advise you need to seek to have a written contract for all of your business dealings. Lawsuits can come from partners, investors, vendors, employees, and customers. You should have contracts with all of these parties that will protect your interests and clearly define the terms of these relationships. Your contracts can include protective clauses such as those that would entitle you to prevailing party attorney’s fees. Having a prevailing party clause will require any party that brings a lawsuit against you to pay your legal fees if you win the case. These provisions tend to discourage frivolous lawsuits. Without a doubt, effective and enforceable contracts are the single most important way you can prepare for the inevitability of getting sued.
If you are interested in preparing your company for potential lawsuits, minimizing your risk, or you are currently facing a lawsuit and need legal counsel, contact the law office of Muir & Associates today.
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