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How to Protect Your Small Business from a Lawsuit

As a businessman, it’s your responsibility to do everything within your power to lower risks and safeguard your business to keep it running smoothly. But how does one go about preserving the company from the possibility of a lawsuit to ensure its continuity?

1. Keep an eye on what you say and what you do

Firstly, concerning your business image, owners and their staff must avoid making any public declarations or conducting any business that might be deemed controversial or could damage that image. What this means is preventing certain activities like libelous or possibly slanderous declarations. Still, in addition to restricting your speech, you might need to curtail doing business with unscrupulous people. Although you may not see the problem with working for a group of individuals who are known for shoddy business philosophies because you know how you conduct business. However, if they take a hit, your name will undoubtedly get dragged along with them. As the owner of a business, you are in control of the image of the company, and what you decide to do with it is your responsibility – and part of that responsibility is getting liability insurance as well. Bear in mind you should interview attorneys when you first set up shop to have standby legal counsel in case of emergencies. 

It’s also wise to consider conflicts of interest. Owners of businesses and their workforce must circumvent situations where a conflict of interest may arise. The attrition caused by conflicts of interest on the integrity of a business owner can cause legal troubles that are seldom worth it.

For instance, if you have a seat on the town council and help pass an ordinance that benefits your business, that would be a conflict of interest, even if you didn’t pass it with your business in mind.

2. Hire competent legal counsel

Proprietors should interview attorneys when they first start their business so they can have standby legal advice when necessary. You may need this professional to advise you before you sign a contract or how to act when you’re about to be sued.

Business owners should also strive to obtain an attorney that is informed about the local laws, ordinances, and orders in the area in which the business functions. In addition to finding a suitable attorney, precautions should be taken when retaining the attorney with expertise in a particular field, if necessary. If your business is expecting legal issues from the Internal Revenue Service (IRS) or a state department of taxation, then it makes more sense to hire a tax attorney.

There are several possible resources to assist you in finding an adept attorney. These procedures involve interviewing and cold-calling from the phonebook, professional references from other proprietors, or through professional organizations that the company may be a member of (such as a local chamber of commerce or any district association).

3. Separate the business from yourself

Countless businessmen and women own and manage their businesses as sole proprietorship. The only issue with this is that if the company is sued for whatever reason, the proprietor’s individual assets (as in their home or their cars) are reasonably easy to assault or attack in the courtroom.

A solution to this – or at least some sort of way to limit and restrict the likelihood that the owner’s personal assets might be the target of a lawsuit – is to have the trust own the business in its name. A trust is a legal entity that, in many contexts, files its own tax return and can own businesses, securities, property, cash, and various other assets. If a correctly constructed trust owns the company, and it happens to be sued, in most situations, the only assets that can be targeted or attached in court are those that are in the trust itself.

Incorporating segregates your company’s capital from your own. This safeguards both your personal wealth as well as your house from attack even if you lose the business in a ruling. However, the drawback to incorporating stems from keeping up with and understanding new laws, taxes, and reports that the government necessitates for a corporation. 

4. Insure yourself

Liability insurance is imperative for all businesses in case – for instance – a customer was to injure themselves in your establishment. Some professionals, like insurance agents and consultants, should also give thought to obtaining errors and omissions coverage to guarantee the business would be protected should a client or customer accuse the proprietor of making some error, or not living up to a contract.

If the business is extensive and has an official board of directions, it may be in also be in the proprietor’s best interests to secure director’s and officer’s liability (D&O) insurance. Once obtained, this insurance safeguards the director’s personal assets in a bigger suit against the company.

In addition to acquiring various insurances, another way to see to it that you have insured yourself against liabilities is to set up protection in your contracts. If an act of nature, a particular supplier, or some other unmanageable element makes it unfeasible for you to satisfy a deal (and therefore exposing yourself to litigation), then you should be creating a barrier that you are not accountable for incomplete tasks due to these factors. Deliberating about the possible clauses and legal phrases required in your work contracts is one of the finest ways to employ your attorney’s time, and it will lessen your need for an attorney later on in your business enterprise.

5. Protect your files

Nearly all businesses nowadays work rather assiduously on computers, so it’s only logical to emphasize the security essentials for your computer set-up. Companies should have updated antivirus and other types of security software installed and running on their systems. If a computer system were to be taken down due to a virus, the business could be at risk of being unable to perform important contracted assignments. Additionally, sensitive vital files could be stolen, compromised, or lost, which could then lead to further litigation from suppliers and clients.

If a massive technological breakdown were to transpire, you should have an archive of backed-up files to refer to. To have these backed-up files, you might have to perform daily, weekly, or even monthly backups, and make your clients aware of which you employ. By storing the backup files off-site, you can ensure your company’s ongoing protection. If you were to keep these files at the place of business, a fireproof safe might be required to store your data safely. Should something unfortunate occur at the facility, the rest of your supplies and materials will be destroyed, but your backup files will be safeguarded. 

If a disaster such as a fire or a hurricane were to happen, will your business be capable of operating? Failure to function could promote the businesses’ inability to fulfill specific contractual responsibilities or to appease other financial or legal arrangements.

Consider obtaining alternative or substitute work sites, opportunities to allow employees to work remotely, portable generators, and other options to perform necessary duties for your company when forces of nature inconvenience your business.

All in all, it is the business owner’s responsibility to protect their business, personal assets, and employees in the event of a lawsuit. With these five courses of action added to your repertoire, your business will be well on its way to a successful, legal, and hassle-free future!

Hire a Business Transaction Lawyer Today

We bring our prestigious large law firm and government service backgrounds to a small firm setting to offer you our extensive expertise in a personal, individualized approach where each case gets our full attention and our clients know they’re our priority. We welcome you to call Hasson Law Group LLP at (678) 701-2869 to speak with an expert attorney who has the experience required to help you with your business transactions today. We are proud to serve the Atlanta, Georgia area since 2013.

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    Hasson Law Group LLC

    The Hasson Law Group, LLP, is an Atlanta, GA law firm dedicated to two principal practice areas: winning high stakes disputes in the areas of business litigation, insurance recovery, and complex criminal defense, and tax, corporate and regulatory law mechanisms affecting family businesses, tax-exempt organizations and the individuals who support or serve them.

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