An Overview on Business Litigation Law
Understand your business's roles and responsibilities
on December 15, 2016
Updated on April 4, 2022
When business disputes arise, many business owners decide to retain the services of a law firm before litigation. Some even engage business litigation lawyers in anticipation of a lawsuit or after receiving notice of a suit. Suppose you’re a business owner trying to decide to retain counsel before litigation, or you’ve just been served and are considering hiring an attorney. In either of those cases, it can be helpful to understand the basics of business litigation law before proceeding.
Business Litigation Law – What You Need To Know
- Business litigation is a complex area of law, mainly because it applies to so many business and legal facets.
- Legal disputes range from breach of contract litigation cases to class action lawsuits involving thousands of participants.
- Business owners should know that their business can be either a plaintiff or a defendant in a case.
- Both roles have different responsibilities, so it’s best to seek the services of a law firm with experienced business lawyers.
An Overview of Business Litigation Law
Business litigation, also sometimes referred to as “commercial litigation,” is a wide-ranging and complex area of the legal system. But consider just how many types of businesses operate simultaneously, all with their own goals and challenges. It’s no wonder, then, how many legal disputes arise through commercial litigation. This topic covers everything from minor contract disputes to far-reaching class action lawsuits.
Your business can be either a plaintiff or a defendant in a case, and both roles have different responsibilities. As a defendant, you must make sure you retain the necessary records. As a plaintiff, you will need to understand who can sue on behalf of the business and when the business itself may be a plaintiff.
Business as Plaintiff
A business may be a plaintiff in a lawsuit, which may bring a lawsuit against another party. The litigation case can be brought on behalf of the company by a shareholder, and against a director or officer for breaching the fiduciary duty in a derivative lawsuit. A business can also sue a party for breach of contract.
Breach of Fiduciary Duty
A fiduciary duty exists when someone exercises discretionary power over the interests of another person or organization; it creates an obligation to act in the best interest of that person or organization. For example, the members of your board of directors owe the business a fiduciary duty. They will breach this duty if they act in their own interests or engage in self-dealing.
If a board member breaches their fiduciary duty, shareholders can sue on behalf of the business. This is called a derivative lawsuit. Standing requirements vary by state: some require that the person held stock at the time of the breach, while others require that the person had stock at the time of the breach and throughout the entire lawsuit. Pre-suit requirements also vary from state to state. Still, it’s generally accepted that the shareholder must first bring the issue to the board of directors before pursuing it in a derivative action.
Breach of Contract
When one party to a business contract fails to comply with their obligations, that party is in breach. What constitutes a failure to follow through depends on the terms of the parties’ agreement. For example, a contract for goods requires a different level of performance than a contract for services because they are governed by different laws—as a contract that contains a “time is of the essence” clause must be performed on the date specified.
Business as Defendant
If your business is a defendant in a lawsuit, you may want to consider talking with a lawyer to ensure you understand the process, as well as what documents you may be legally required to keep. In some instances, if you fail to retain business records, a judge can instruct the jury to assume the missing documents were harmful to your case even if they weren’t.
In addition to derivative actions on behalf of a business, a shareholder can sue a company directly for harm they suffered due to actions taken by the business, an officer, or a director. Direct shareholder actions can be based on the denial of rights to which the shareholder is entitled, including voting, ownership, and record inspection.
As an employer, your business may also be sued for employment-related reasons. Employment law is a broad topic, but you should be aware that your business may be liable for discrimination and employee misconduct under the theory of vicarious liability. You can get more information about employment law issues by following this link.
Common Questions to Ask a Business Attorney
Below are some common questions you may want to consider when meeting with an attorney for the first time.
- Do you have experience with business litigation cases
- How will litigation affect my business?
- Does my case qualify for alternative dispute resolution such as arbitration or mediation?
- Will suing my business partner dissolve the business?
- When can a shareholder sue a business?
- What business records do I need to hold on to during a lawsuit?
Finding the Right Business Litigation Attorney for Your Needs
It is essential for business owners to approach the right type of business litigation attorney. If you’re a business owner, you’ll want to hire someone who can provide legal advice and help you through your entire case. To do this, you can follow this link to the Super Lawyers directory and use the search box to find a lawyer based on your legal issue and/or location. You may want to consider looking for an attorney specializing in business litigation.
Should I Talk to a Business Litigation Lawyer?
Yes, because business litigation law can be a complex field. Legal issues often take years to resolve. There are special rules about document retention and what you do or do not have to give to the other parties in the case. There are rules that apply when your business is the defendant and when your business is the plaintiff. And there are rules about when a shareholder can act on your behalf and when a shareholder can sue the company. These rules can be daunting, and an experienced lawyer can help you understand the ins and outs of each rule and exception.
A business litigation attorney will anticipate potential problems with your case and advise you on approaching them. They may even be able to help you avoid potential problems altogether. Your lawyer will also keep track of deadlines and file all paperwork with the necessary courts and agencies, giving you one less thing to worry about. A strong attorney-client relationship built on trust can lead to success later on.
Why Super Lawyers?
Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations, and peer evaluations. The objective is to create a credible, comprehensive, and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel.
As Super Lawyers is intended to be used to select a lawyer, we limit the lawyer ratings to those who can be hired and retained by the public. You can learn more about the selection process here.