Ten Ways to Protect Your Small Business from Lawsuits
By Charles Bowen
At some point, almost every new client asks me some variant of the same question: “How can I keep from getting sued and losing my house, my car, my money, my spouse, my kids and my dog?” The honest answer to that question is: you can’t. In fact, the more successful you are, the more likely it is that you will one day have to deal with the hassle of defending a lawsuit.
That having been said, there are ten very simple steps that every business owner can take to greatly reduce the risk of being sued. If you are sued, these steps can also both significantly increase your chance of victory in the courtroom and protect your assets from risk.
BUSINESS ATTORNEY CHARLES BOWEN
FULL LECTURE: https://www.youtube.com/watch?v=RSvb5JzDJaI
1. Incorporate. Operating a business simply under your own name is a recipe for financial disaster. Forming a corporation, LLC or other similar business structure is crucial and will put up a solid wall between your business assets and your personal property. Make certain that your corporate name is featured prominently on your business cards, website, etc., and that you keep separate accounts for the corporation. Any experienced accountant or business attorney can help you choose the structure that is best for your business.
2. Buy insurance. This is easily the second most important step that can be taken to increase protection and peace of mind. This may be commercial liability insurance or errors and omissions coverage depending upon the type of business, but either way I recommend that my clients procure as much coverage as they can afford (preferably at least $1 million). If you do get sued, insurance will often cover both the cost of an attorney to defend the case as well as any damages awarded, and the premiums are usually tax deductible.
3. Transfer assets. As long as it is not being done for purposes of fraud, it can be wise for a business owner to legally transfer key assets (such as a house or investment portfolio) into the name of your spouse or other trusted family member that is not involved in the business. Keep in mind, however, that you are truly giving up ownership (which could be an issue in the event of a divorce or other dispute).
4. Keep business contracts simple and use disclaimers. While care should be taken to make sure it contains all legally-necessary elements, a simple contract written in easily-understandable terms is far more likely to be enforced than one containing a lot of confusing “legalese.” In addition, the use of disclaimers (such as limitations on liability and a lack of warranties if you sell goods) can offer invaluable protection and should be a standard practice in all of your business contracts. Any skilled corporate attorney will be able to quickly review your standard contracts and make certain they are enforceable and provide you with the maximum possible legal protections.
5. Engage in good business practices. In other words, be smart, honest and mindful of everything you say and do. Successful entrepreneurs routinely avoid making any public announcements or conducting any business that might be considered disreputable. This means resisting the temptation to make potentially slanderous statements (no matter how well deserved), doing business with unscrupulous individuals and avoiding potential conflicts of interest. More importantly, when you make a commitment to a client or customer, honor that commitment and make customer satisfaction your top priority.
6. Put it in writing. Making sure all agreements are reduced to writing is easily one of the best ways to avoid litigation. The time and money spent drafting a written contract is miniscule compared to the expense of a lawsuit based upon a misunderstanding. Every agreement, invoice, financial transaction and even phone message should be written and safely preserved whenever possible.
7. Understand and follow the law applicable to your business. While the sheer number of laws and regulations that relate to your profession may be daunting, making certain your business is compliant with the law is an extremely powerful deterrent to litigation. Consult with an attorney or spend the time necessary researching and reviewing the local, state and federal laws that apply to your business. Make certain that you have obtained and filed all necessary permits, licenses, fees, taxes and registrations. Like every other area of the law, ignorance is not a defense.
8. Communicate. Remember: happy people don’t sue. It should be no surprise that many lawsuits arise from simple misunderstandings and hurt feelings. If you do find yourself in a dispute, try to deal with it quickly and professionally. Do not ignore the problem and always strive to keep your anger in check. A friendly telephone call or honest discussion can often lead to an amicable resolution.
9. Hire a skilled business attorney. It is always advisable to find a corporate attorney with whom you feel comfortable when starting a new business (and the cost is typically not nearly as prohibitive as you may fear). A good attorney can not only be an invaluable source of assistance and assurance if you get sued but also in many other matters relating to the daily operation of your business, such as legal compliance, contract reviews and debt collection.
10. Avoid crazy people! While this is last on the list, it could easily be first. It never ceases to amaze me how often a client that has been sued tells me, “I knew that person was trouble from the moment I met them!” Remember: you are not required to do business with every person that contacts you. Always trust your gut instinct. A tactful refusal such as “I am simply overbooked right now and I know you need this work done right away” can avoid many future problems. And, of course, you can always refer them to your biggest competitor…
ABOUT CORPORATE ATTORNEY CHARLES BOWEN:
Based out of Savannah, Charles Bowen is a business attorney who focuses on commercial, banking and manufacturing law and also offers comprehensive mediation services. Bowen attended Mercer University in Macon, Georgia where he graduated summa cum laude with honors in both psychology and political science. Upon graduating from Georgetown University Law Center in 1995, Bowen moved to Savannah and established a corporate law practice. He has received the Martindale-Hubbell® AV® Preeminent™ rating, the highest rating based upon confidential surveys sent to other attorneys. Also, Bowen has been selected by the members of the State Bar of Georgia as one of Georgia Trend’s 12th Annual Legal Elite for December 2014 in two categories: Business Law and Corporate Law.
This year will mark Bowen’s 20th year in practice as an attorney.
Charles J. Bowen, Founder, The Bowen Law Group