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Legal Headaches: 8 Top Tips for Protecting Against a Business Lawsuit

Did you know every year at least 36 to 53 percent of small businesses go through litigation? Ordinary people rarely deal with lawsuits. However, in business, things are different.

Businesses deal with various stakeholders who include employees, customers, suppliers, and expert professionals. These third parties expose the company to legal battles that could potentially cost the business a lot of money in fines and penalties.

One lawsuit can send a small business on its knees or out of the market. Thus, as the owner, you need to be careful about facing litigation. In this light, here are our top tips you can employ to protect your firm against business lawsuits.

1. Understand the Common Causes of Litigation

You cannot hedge your business against something you know nothing about. Hence, the first thing you should do is understand why most business today get sued.

Below are some sources of business litigation:

Employees

Employees usually sue their employers for workplace accidents, wrongful termination, discrimination, harassment, and wage violation among other issues. For example, if an employee gets injured when dispensing their duties, they will sue you for medical expenses, lost wages, and pain and suffering.

Customers and Third Parties

Customers sue businesses for product liability if they are sold a defective product. Product liability lawsuits can lead to numerous lawsuits, especially if other clients come with claims that they got injured after consuming your product.

Also, anyone who visits your firm premises and gets injured can sue for personal injury. For example, according to research, slip and fall accidents account for 8 million hospital emergency room visits. If you don’t protect your business, you’ll use its assets to pay off the damages.

Intellectual Property

An individual or business owner can come out with claims that you’ve stolen their ideas or products. Others claim the violation of Copyright rights, especially if you fail to credit them for an idea or product.

Intellectual property lawsuits force businesses to cease using an idea or selling a product. You can also be fined and asked to pay damages to the original owner of the concept.

2. Insure the Firm Against Business Lawsuits

Once you know the kind of risks your business is exposed to, buy the right insurance to protect it against lawsuits. The essential types of insurance for business include the following:

  • Workers’ compensation insurance. This pays for medical expenses, lost wages, and any suits associated with employee injuries at the workplace.
  • General Liability insurance. This cover protects the business against all forms of negligence claims. General liability insurance covers compensatory damages, non-monetary losses, and damages.

The general liability cover is a comprehensive cover that includes third-party liability and product liability. It is an essential coverage for protecting your business from third-party lawsuits.

3. Present Your Business as an Independent Entity

Many small business owners don’t separate their personal and business assets. If there’s a lawsuit, their assets can be used to pay off damages and penalties.

Create your business to be a separate independent entity by incorporating it. Establish a Limited Liability Company. It is considered an independent body that can acquire and sell properties, transact, sue, and get sued.

When your business is an LLC, you can’t be sued or charged for lawsuits against the firm. Only the assets of the company are affected. Creating an LLC protects your assets and interests during a business lawsuit.

4. Always Create Legally Binding Contracts

Open contracts or informal agreements between your business and employees, customers, suppliers, or other third parties can land you in trouble. If there’s a disagreement, there’s no binding agreement to protect the business.

Always write legally binding contracts when entering into an agreement with other parties. Also, don’t sign the contract as the business owner. Let the deal be between the business and the other party.

If you use your name, the other party can come for you and your assets. However, if you use the company’s name, only the firm gets sued in a suit.

5. Implement Clear Company Policies

Setting up clear company policies can save you from some forms of litigation. For example, have a written employee handbook and have every new worker to sign an employment contract on absorption.

If a worker sues your business but has violated the terms of their employment, you can use the contract in your defense. It can also come in handy when negotiating settlements

Also, invest in employee training to reduce accidents at the workplace. When your workers are empowered, they not only improve their performance but also observe safety measures at work.

6. Observe Ethics at the Workplace

Observe ethics in your daily management roles. Be an honest and morally upright employer. Encourage others in the company’s leadership to do the same.

Ethics can save you and your management from false accusations over issues such as harassment and discrimination. Check out this article to find out more about false accusations and what you should do when a party accuses you falsely and takes you to court.

Remember to observe ethics in business operations as well. No dollar is worth jeopardizing your company’s resources. If the firm gets sued for fraud or compliance issues, it can quickly tumble to the ground.

7. Build a Reliable HR Department

Your human resource team is a great asset in protecting the business against suits. The HR team handles issues surrounding employees, employee wages, harassment, litigation, and much more.

With a reliable and A-class team, employees can voice their concerns and have them tackled before the issues escalate to lawsuits. However, if they do, your HR department will have all the necessary records and documentation to protect the firm.

8. Up Your Customer Service Game

When’s the last time you evaluated your customer service? Did you know excellent customer service can reduce third-party lawsuits against your business?

A customer who gets excellent service from a company is less likely to sue it when one thing goes wrong. Their loyalty to the firm makes them feel compelled to protect it from public shame.

However, if your customer service sucks, people will sue you for the smallest things to have you pay for giving poor services. Thus, invest in quality customer service to increase client loyalty and reduce lawsuits.

Protect Your Business Against Lawsuits Today

Observe these tips to protect your firm against business lawsuits. However, if you get sued, your insurance cover will go a long way in protecting the company assets. 

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