7 Rules To Protect Your Business From Lawsuits
Every business in the world has some potential risk of facing lawsuits. But, especially if you are a small business owner, risks come from all sides and you need to be prepared for the worst-case scenarios.
Take it any way you want, but dealing with business lawsuits is not a pleasant experience. This will usually happen once you infringe on business trademarks, copyrighted material, etc. Once this happens, you can expect to face lawsuits.
Well, let’s not waste any more time because in this article, we will discuss more on what rules you need to follow to protect your business from lawsuits.
Table of Contents
- Follow Rules To Protect Your Business From Lawsuits
- 1. Keep written records
- 2. Acquire general liability business insurance
- 3. Pay close attention to what you are doing and saying
- 4. Avoid employee discrimination at all costs
- 5. Make your product and service top-class
- 6. Don’t mix personal finances with business ones
- 7. Don’t forget about protecting your intellectual property
- How commonly do businesses get sued?
- The bottom line
Follow Rules To Protect Your Business From Lawsuits
1. Keep written records
Whenever you keep a record of signed agreements, this saves your business from potential harm. Not only does it clarify many rights and duties each party has, but it is also there for you if you get sued.
If you are wondering which type of formal contracts you need, you can always get an attorney’s advice. However, the best thing you can do is record important information from every business transaction. For instance, you can record the delivery date and price, emails, notes, phone conversations, services and products, and more.
2. Acquire general liability business insurance
General liability business insurance covers your business when someone in your team faces any bodily injuries that lead to medical costs or even damages to someone’s property. Let’s not forget that lawsuits can occur when you damage someone’s property, but you can avoid these by having general liability insurance.
Whenever you don’t have business insurance to cover you, lawsuits can easily damage your business reputation and budget if you aren’t protected. Going in-depth, what exactly does general liability insurance cover? Here are the primary things they cover:
- Third-party bodily injuries
- Third-party property damage
- Tenants legal liability
- Product liability
- Liber and copyright
Sometimes business owners might ask if they need general liability insurance or not. The real way to stay secure from any lawsuits or the primary reasons you need coverage is because of the following:
- You are using third-party locations for business activities
- You are using your client’s equipment
- Your customers ask for you to have it
- You are representing a client’s business
- You are visiting your client’s office or hosting clients at the workplace
- You need protection from potential lawsuits
3. Pay close attention to what you are doing and saying
Your business’s image is important and you should avoid making public announcements or conducting business that may raise eyebrows. Additionally, this includes not doing business with individuals that are not trustworthy.
You may think there isn’t much of an effect, but working with a group of problematic individuals might significantly damage your brand’s long term reputation. Nevertheless, their actions might put you into trouble you can’t escape. Therefore, it’s important to always pay close attention to who you are working with and if that company is on the right path.
4. Avoid employee discrimination at all costs
Employee discrimination isn’t a good thing to go through within a company. More than 50% of companies worldwide practice employee discrimination, which isn’t a good sign. Some of the common lawsuits businesses conduct are employee discrimination and wrongful termination. In order to be successful in protecting your business, you need to do the following:
- Fully understand federal and state labor laws: Before implementing new workplace policies, ensure you know which laws apply to your business. For example, there are plenty of laws that are against harassment in the workplace, employee privacy violations, discrimination, and more.
- Hire an HR expert: All businesses can face lawsuits, but small and middle-sized businesses face more employment lawsuits than larger businesses. HR consultants are usually the ones who can help you always stay compliant with local, federal, and state laws.
- Clarify everything with your team: Nothing is better than clear communication and understanding what they want before it becomes a lawsuit. Communication is always better than having to face unnecessary charges.
- Know more about legal terminologies: The last thing you want to happen is not to know much about lawsuits. However, you must comply with all laws and avoid employee harassment, discrimination, etc. Discrimination in the workplace isn’t a joke and it’s always important to respect boundaries, or you’ll face the consequences.
- Create a compliance rule: This should account for everyone in the organization. Rules are what stop people from crossing boundaries and give all employees enough protection. In addition, a compliance rule and discipline plan help you avoid any Equal Employment Opportunity Commission (EEOC) lawsuits.
- Hire the right lawyer: Don’t hire a lawyer after facing a lawsuit. Instead, do this before it happens and always have a lawyer who reviews policies, drafts employment contracts, termination, hires, etc. These documents and policies are highly important for your company’s benefit.
5. Make your product and service top-class
You will face a product liability risk for every product you sell, especially if it’s a proprietary product. In addition, any product you sell with defects can lead to severe injuries for all users.
Moreover, users who might face these injuries have plenty of rights, so don’t think they can’t sue your business. But, depending on how bad the injuries are, your business might have to pay hefty fines if the consumer does win the case. Not something you want to happen and is one of the main reasons we recommended you get general liability insurance.
Every product that enters the market must undergo a quality assurance test (QA testing). These tests are effective for preventing lawsuits, but you must also pay close attention to other details. Sometimes, you might conduct multiple quality assurance tests and have a defective product.
Therefore, you can never say you are free of product injuries because they can never happen. Product liability can even occur with your own colleagues. While they use the product, they might undergo injuries and your business will be liable for it.
Risk will always be around regardless of how careful you are with your QA testing or how well you manage and run your business. As we mentioned before, the best bet you have is to get general liability insurance and even hire a specialist to help you comply with rules.
6. Don’t mix personal finances with business ones
Many small business owners make this mistake over and over. It’s the fact of mixing their personal finances with their business ones. If you go bankrupt, you won’t only have to deal with business issues but also your private life.
Even if your business finances are doing well, a lawsuit might make you pay hefty fines, which might even drastically hurt your personal finances.
As an alternative, you can structure your business as a Limited Liability Company (LLC) and ensure protective measures that can separate your personal assets from liability-related lawsuits for your business. Of course, you should discuss all these benefits in-depth with your legal advisors.
7. Don’t forget about protecting your intellectual property
Your intellectual property is something you shouldn’t forget about. You must take the right action and consult your lawyer before discussing available asset protection options. They might advise you to find trademarks for your brand or logo, set up copyrights for your work, seek patents for your inventions, and more.
These are all important steps you need to take to protect your personal assets if you face any business lawsuits.
How commonly do businesses get sued?
According to statistics, roughly 36% to 53% of businesses get sued for something and 90% of businesses will have to face lawsuits. Considering these statistics, it’s common for your business to face a lawsuit at least once during its lifespan, especially if you are running a sole proprietorship.
Steps you should undertake if your business is sued?
The first thing to do if your business is sued is to contact your lawyer and insurance company. Always avoid acting based on your needs and never remain compliant. Hiring the right lawyer will always guide you through the right process and help you overcome uncertainties, so take notice of this process.
The bottom line
We went through the top seven rules you need to protect your business from potential lawsuits. As we saw statistics, we realized that almost every business could face lawsuits during its lifetime.
The most important step to cover is to ensure that you are prepared to undergo any uncertainties and hire the right lawyer to guide you during these phases.