You may just be starting out as a businessowner, or perhaps your company is in its early stages and doing well. This is good news—but are you prepared for a lawsuit?
Litigation is probably the furthest thing from your mind. But if you own a small business, it is never too early to make sure you are ready for the unexpected. Here are four tips to help you prepare for the possibility of a lawsuit.
1. Know your personal liability
If you own a small business, certain situations can put your personal finances at risk. The court could determine whether you are following “corporate form” by keeping separate bank accounts, filing separate returns and maintaining proper records for payroll and inventory. In other words, the court wants to know whether you are mixing business and personal accounts. The answer could find you personally liable in a lawsuit.
2. Review insurance options
There are several kinds of insurance that can protect you and your business in certain situations. You may want to look into the following:
- Employment practices liability insurance
- Environmental insurance
- Directors and officers insurance
- Workers' compensation policies
3. Preserve documents
If a situation develops that prompts a lawsuit, act immediately to secure any documents that could relate to the claim, including information that exists in electronic form. Make sure that no one deletes, shreds or otherwise disposes of information pertinent to the suit. If the court finds that this has occurred, you can expect penalties, and some can be harmful to your business.
4. Seek legal help
Keep in mind that most business owners face a lawsuit at some point in the life of their companies. Small business owners have more to lose than corporate entities because they can be held personally liable if a legal issue arises; in fact, tens of thousands of dollars could be at stake. Therefore, if you have not already done so, the final tip is to establish a relationship with an attorney who can step in to help if you see a lawsuit on the horizon.