The longer you are in business, the more likely it is that you will face a lawsuit.
Small businesses are more at risk for litigation damage than corporations, but sensible preparation helps to protect against the possibility of legal entanglements.
Understanding personal liability
You may have dozens of employees but yours is a small business compared to corporations with dozens of offices. If you should have to defend yourself against a lawsuit, the financial consequences could be devastating. For example, the court would analyze your “corporate form,” meaning how you keep your payroll records and inventory and how you file your tax returns. The court would also permit the plaintiff to hold you personally liable, which could put your income and savings at risk.
Choosing insurance protection
Certain insurance options can provide protection for you and your business if a lawsuit arises. Examples include Employment Practices Liability Insurance, Directors and Officers Insurance, Environmental Insurance, Commercial General Liability, and, of course, Worker’s Compensation, which you may already carry.
If litigation is already underway, you must seek legal counsel immediately. You must also institute a litigation hold whereby you identify the people and information that relates specifically to the lawsuit. You must preserve all such information, in both electronic and hard copy form. If you should lose or discard any pertinent information, the court can impose sanctions.
Running the risk
Every business owner faces the possibility of a lawsuit. It could involve a contract dispute, trade secret issue or breach of fiduciary responsibility. Having a plan in place to deal with possible litigation is the best way to protect your peace of mind and your business.