How To Protect Your Business From a Lawsuit

There are proactive steps you can take as a business owner to protect your business from a lawsuit. Get upfront legal advice on all contracts, business documents, and company policies and procedures. To ensure employees follow the policies you’ve created, implement robust training and oversight. If legal claims do arise despite precautions, have business insurance in place and consult a business litigator.

“In most cases, litigation is not a good business. It’s a rare instance in which litigation will earn a company money or improve its bottom line. So it’s best to avoid,” says Benjamin I. Fink, a business litigation attorney at Berman Fink Van Horn in Atlanta, Georgia.  

If your business is involved in a lawsuit, speak with an experienced business litigation attorney for guidance.

Common Legal Issues in Business Litigation

Every business lawsuit is different, involving specific people, events, and legal claims. Some of the most common types of business lawsuits include: 

• Breach of contract 
• Breach of fiduciary duty 
• Intellectual property infringement
• Malpractice cases, often in the healthcare context 
• Motor vehicle accidents involving a company car or truck 
• Workers’ compensation claims for workplace injuries, which are often handled through an administrative process rather than a civil lawsuit
• Product liability claims for defective products or a business’s failure to warn of a dangerous product 
• Premises liability for when a customer is injured or experiences property damage due to hazardous conditions 

Who Can Sue a Business?

Many different parties may sue your business. For example: 

• Customers for personal injury or malpractice
• Employees for employment disputes
• Other companies for breach of contract or intellectual property claims
• Shareholders and business partners for breach of fiduciary duty

Ultimately, who sues will depend on what happened and the legal claims involved. 

Steps To Protect Your Business from Legal Action

“There are “numerous ways to try to avoid legal action,” says Fink. “For example, take a breach of contract lawsuit. If a company is negotiating a contract with another company, have a lawyer involved to help identify potential issues or areas of dispute and hopefully avoid those from coming up if the business relationship doesn’t work out.” 

In other words, instead of fixing potential legal issues later, avoid them by creating a legally sound contract from the beginning.  

Have Robust and Up-To-Date Company Policies and Procedures

“Another way to avoid many kinds of business lawsuits is to have really good policies and procedures in place within the company to ensure that you’re in compliance with the law,” Fink says. Policies and procedures are typically included in an employee handbook provided to employees when hired.  

However, simply having policies and procedures in place isn’t enough. “Make sure that you not only have the policies and procedures, but that the employees are educated on them and understand what they say and why they exist.”  

Human resources often conducts training in company policies and procedures. “It’s important to make sure that people aren’t engaging in conduct that’s going to lead to liability for the company,” says Fink. 

Have Business Insurance in Case of Disputes

In addition to having excellent policies and training, businesses need insurance coverage for potential claims. Insurance companies offer various policies geared to the needs of different businesses.

Some of the most common types of business insurance policies are: 

• General liability insurance. Also referred to as small business insurance, this liability policy covers the most common injuries or accidents that may occur at a business, from slip-and-fall accidents to property damage. General liability also covers legal fees if you face a lawsuit. 
• Professional liability insurance. Also known as “errors and omissions insurance,” this type of insurance helps cover the costs of a lawsuit when your business is sued for making errors that result in another company or client’s financial loss. 
• Malpractice insurance. This insurance helps cover legal costs when professionals are sued for malpractice. Doctors and other healthcare providers, lawyers, and counselors are examples of professionals who often get (or are required to get) malpractice insurance.  
• Workers’ compensation insurance. Most states require businesses to carry workers’ compensation insurance to help cover costs when an employee is injured on the job.   
• Commercial auto insurance. If your business employs drivers or deliverers, this insurance helps cover the costs of injuries from work-related auto accidents.  

It’s best to speak with an insurance company representative about different insurance policies and the combination that works best for your business. 

What Business Structure Is the Most Protective in the Event of a Lawsuit? 

Another factor in protecting your business in the event of a lawsuit is how your company is legally set up, including asset protection, personal assets, and bank accounts. 

• Sole proprietorships. Many small business owners set up their businesses as sole proprietorships because it is the simplest and cheapest option. However, a significant risk with this business structure is that it doesn’t protect the business owner’s personal assets from liability if the business is sued. If the business is sued, the owner’s assets will be at risk. 
• Limited liability company (LLC): Unlike a sole proprietorship, this business structure offers asset protection by separating the business owner’s assets from the company’s. If an LLC is sued, the business owner is not personally liable. 

If you are considering starting a business, or are currently a business owner with a sole proprietorship, speak with a lawyer about your options for protecting your assets. 

What Should I Do if My Business Gets Sued? 

Despite best efforts, many business owners can’t avoid a lawsuit at some point in their business’s life. If that happens, it’s imperative to call a lawyer for legal advice.

“Another thing business owners can do, and that’s a real big issue these days, is evidence preservation. As soon as possible, and maybe even before calling a lawyer, make sure that none of the emails or documents or any other electronic communications related to the dispute are lost or destroyed,” Fink says.

“For example, if you have a setting on everybody’s company email that emails over a month old get deleted for some reason, make sure you immediately suspend those kinds of document destruction procedures to make sure that nothing related to the dispute is destroyed.” 

It’s also important to keep accurate records so you have evidence to defend yourself if your business is sued.

Find an Experienced Business Litigator Near You

If you are a business owner confronting a lawsuit, get legal counsel from a business lawyer as soon as possible. Visit the Super Lawyers directory to look for a business litigation attorney in your area.