How to Protect Your Business From a Lawsuit

Personal Injury Lawsuit
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One of the largest threats facing organizations today is a business lawsuit. Learn how to strategically protect your assets.

Anyone can sue your business for various reasons. If you infringe on another business’ trademarks or copyrighted material, expect a lawsuit. If a customer sustains an injury on your premises, a lawsuit can come your way. If you mishandle customer data, your business might face a class-action lawsuit…

You can’t prevent anyone from suing you, but you can protect your business from the adverse effects of a lawsuit. The big question is: how do you protect your business?

In this article, we’re sharing the various strategies you can use to minimize your business legal risks.

Comply with All Relevant Laws

It’s simple, really. If you don’t want your business to be sued, don’t break any laws. Just the same way you wouldn’t murder or rape or kidnap anyone if you don’t go to go to jail for a long time.

The only problem? There are so many federal, state, and local laws that it’s almost impossible for a small business owner to know them all. To make matters even more complicated, some of these laws are always changing.

The good news is most legal violations would go unnoticed and, as such, result in no lawsuit. At worst, you’ll receive a small fine or even a warning. Make no mistake, though. This isn’t an excuse to break to law, however minor it is.

In most instances, it’s the major legal violations that will result in a lawsuit.

For instance, if your business fails to pay its taxes for several years despite the taxman’s effort to get you to pay up, expect a tax evasion lawsuit. Or if you’re a manufacturing business that violates emissions laws, the Environmental Protection Agency won’t hesitate to take you to court.

In short, run your business in compliance with all the relevant laws and policies. If you do this, at least you can rest assured that no government agency will slap your business with a lawsuit.

Offer High Quality Products

If your business sells propitiatory products, you face a product liability risk.

A malfunctioning or defective product can inflict serious injuries to a user. Nothing stops this user from suing your business for compensation. Depending on the severity of their injuries, your business could be ordered to pay vast amounts of money if the consumer wins the case.

Offering products that have gone through rigorous quality assurance testing is an effective way to prevent such lawsuits, but it isn’t a fool-proof method. Sometimes things will slip through and defective products will end up in the market.

Therefore, you can never completely rule out product injuries.

The same goes for professional liability and on-premise liability. If a customer or a worker injures themselves in your premises, there’s a good chance your business will be held liable.

No matter how carefully you run your business, risks will always be there. How do you minimize these risks?

This is where liability coverage comes in. If a person sues your business and you’re held liable, your liability insurance provider will compensate them for their injuries and losses.

There are different kinds of liability coverage, most tailed to specific liabilities and nature of business. If you run a distillery, for instance, you’ll get a customized property and liability insurance policy that suits your business.

Set Up Your Business as an LLC or Corporation

Setting up your business as an LLC or corporation doesn’t directly protect your business from lawsuits, but it’s a good move. Here’s why.

Picture these scenarios: You buy a product from an individual/sole proprietorship. The product injures you badly. You buy a product from a big corporation. The product injures you badly.

After recovering, who will you be quick to sue?

If you bought the product from a sole proprietorship, you’ll certainly be quick to sue them. You get to go after the owner of the business directly. If you win the case, the owner will be individually accountable.

But if you bought from a large corporation, you’ll be hesitant to press charges. Even if you did, you’ll have little hope of winning the case. These corporations have dedicated legal departments whose primary brief is to thwart lawsuits like yours.

Now come back to your real life as a business owner.

As a sole proprietor, you expose yourself to lawsuits. But if you’re an LLC or corporation, most people who want to sue will think twice before doing it.

Plus, an LLC or corporation protects you from personal liability. Your personal assets won’t be on the line in the event that your business loses a lawsuit and has to pay up.

Hire a Business Attorney

Large corporations have in-house legal departments and as a result, they have great power to prevent and defeat lawsuits.

Your business doesn’t have to be a large corporation to hire a lawyer. Most business lawyers offer retainer arrangements, meaning you won’t spend a lot of money on legal fees.

When you retain a lawyer, you’ll have access to their services. You can seek legal advice whenever the need arises. This way, you’ll prevent or know how to handle lots of small issues that can quickly turn into ferocious lawsuits.

If there’s a business dispute brewing, for example, your lawyer can intervene and act as a mediator. Mediation prevents most disputes from getting to court.

You Can Avoid Business Lawsuits

A business lawsuit doesn’t just disrupt your normal operations. It can also hurt your business’ reputation and cost you a lot of money in legal fees, fines, and settlements.

It doesn’t have to get there, though. With this guide, you now know to protect your business from a lawsuit.

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