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How to Protect your Business from a Lawsuit

An “ounce of prevention is worth a pound of cure” is not only true for your health but also accurate in the legal world.  Many steps can be taken to reduce a business’s exposure to a lawsuit or limit the effects upon a business and its owner(s) if a lawsuit is filed.  Burnham Law has compiled the following preventative tasks you can do to protect your business from a lawsuit.

Hire a Business Attorney

Don’t wait until you have been served with a lawsuit; hire an attorney early.  Having a business attorney gets your business off to a sound legal beginning and minimizes your future exposure.  In fact, many lawsuits could have been avoided in the first place had the business owner consulted with an attorney early in the venture.

Business attorneys can provide legal advice on a wide range of topics such as personnel issues, contract language, and compliance.  The primary goal of a business attorney will be to identify the risks and provide measures to minimize them.

If you find yourself already running your business, it is not too late to retain a competent business attorney.  Having a lawyer review your business practices and make recommendations will reduce the risk of a lawsuit.

When seeking an attorney, be sure to retain an attorney familiar with generalized law and the laws specific to your field.  Whether your business is in construction, marijuana, sales, or anything else you should have an attorney who understands the nuanced laws in your specific field.

Choose the Right Business Structure

By choosing the right business structure, you can provide solid protection for your personal assets.  Without a business structure, you would operate as a sole proprietor or general partnership, with you and your business being the same person.  This means anytime your business is liable, you will also be personally liable.  Separating the business from its owner will protect the owner from personal liability.

There are a variety of business structures to choose from, and an attorney can advise what is best for you.  With the help of a business attorney, your business structure can provide legal protections while also giving you your desired financial, operational, and management methods.

Another structure to limit liability is to have a trust own your company.  If a properly created and ran trust owns a business, liability is usually limited to assets owned by the trust.

Separate Your Finances

By maintaining business finances separate from your personal finances, you can provide solid protection for your personal assets.  Despite the protections of your business structure, without separating your business and personal finances, the owner could still be held personally accountable for liabilities.

Additionally, by separating your finances, you can avoid unnecessary tax problems while accurately accounting for all income and expenses.  No matter how organized a business owner is, running personal and business expenses through the same bank account rarely results in accurate bookkeeping—and it can create legal exceptions to the personal liability protection incorporating a business provides.

In addition to keeping separate bank accounts, business owners should obtain a federal employer identification number (EIN).  An EIN is a nine-digit number assigned to the company by the IRS that is used just like your personal social security number.

Insurance

Insurance coverage comes in many forms, including general liability, employment, vehicle, and cyber insurance.  While a general liability policy may provide coverage for a slip and fall, that same policy may not provide coverage for a discrimination lawsuit.

It is not economically feasible to purchase insurance for every type of risk.  This is where an attorney can help.  Your business attorney can evaluate the risks for your business and advise you on the type of insurance policies that match your individual business risks.

Use Contracts

Many lawsuits are the result of a handshake deal without any written contract.  Having a properly worded contract can provide legal protection and dispute resolution that is far less expensive than litigation.

Educate your Staff

One method of protecting your business from a lawsuit is ensuring your staff understands what acceptable and non-acceptable behavior in the workplace is.  This type of education provides clear boundaries for your staff.

In today’s mobile society, there are many methods by which a business owner can educate their staff:

  • Hiring an outside trainer;
  • Training by inside human resources or other management;
  • Online training modules;
  • Conferences.

Protect Your Data

Almost every business in today’s world has some or all of its operations held digitally.  Included in the digital files are usually valuable information such as intellectual property, trade secrets, private information, pricing information, and other important or sensitive information.  Protecting this information is critical to avoiding lawsuits.  Adding to the importance of cybersecurity is the growth of government regulation over data protection.

An experienced business attorney can educate your business on regulation requirements.  Regulations are constantly changing in data protection.  Penalties and liability for failure to comply with data protection regulations are becoming more and more common.

An experienced business attorney can also assist in a risk analysis of your business.  Business attorneys can help you see the red flags and provide corrections before your business is hit with a lawsuit.

  • Business attorneys can advise what information is confidential and how it must be protected from both the public and fellow employees.
  • Business attorneys can assist in the creation of an employee password policy.
  • Business attorneys can create policies for BYOD (bring your own device).
  • Business attorneys can assist in employee education on cybersecurity.

Implement an Employee Complaint Procedure and Discipline Plan

Many lawsuits stem from personnel issues.  Business lawyers can help draft complaint and discipline plans that comply with the law and reduce the employer’s legal risk.

A properly drafted complaint procedure allows the business to improve morale, improve workplace practices, and minimize legal action.  The complaint procedure should be drafted in a way that is fair, confidential, clear, accessible, and efficient.

Proper discipline plans provide a clear, transparent, and fair procedure while providing the employee with an opportunity to defend their performance and sufficient opportunity to correct.

At Burnham Law, we provide our business clients with legal advice that is preventative and specific.  Burnham Law aims to prevent legal action against you and your business.  We will provide advice that is tailored specifically to your business and your industry.  One-size-fits-all legal advice is not sufficient in today’s dynamic business world.  Burnham Law wants to see your business succeed; let us reduce your legal exposure so you can concentrate on your business.  Schedule your consultation today.

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Aaron
Belzer

Managing Partner - Civil Litigation

Boulder

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