You probably know that it is not uncommon for a business owner to face at least one lawsuit during a company’s lifetime.
You spend a great deal of time building your enterprise and making it successful. How do you guard against a lawsuit that could devastate the business you love?
Understanding your personal liability
As a small business owner, you do not have the advantage of a “corporate veil.” So, if a lawsuit threatens, your income and personal property could be at risk. The court will want to know if you are following “corporate form;” that is, whether you keep the proper separation between your business and personal bank accounts and tax returns and whether you maintain the appropriate payroll and inventory records. If the corporate form is lacking, the court can allow the opposing party in the suit to hold you personally liable.
Recognizing the insurance options
Insurance can provide a certain level of protection for your business in the event of a lawsuit, and there are several options to consider, including:
- Employment Practices Liability Insurance )EPLI)
- Directors & Officers Insurance (D&O)
- Commercial General Liability (CGL)
- Environmental Insurance
- Workers’ Compensation Insurance
The cost of litigation could overwhelm your resources. In comparison, insurance protection is an inexpensive way to safeguard your company.
Developing a relationship with an attorney
If a lawsuit appears on the horizon, the first call you need to make is to your attorney. Developing this kind of professional relationship with someone you can rely on for advice and support is essential.
Managing potential litigation
If you learn of impending litigation, you should take immediate steps to prepare. It is important to initiate a litigation hold. This refers to identifying the people and documents that might relate to the lawsuit and ensuring that pertinent information is retained. Otherwise, you risk the court imposing sanctions that could harm your company. This is just one area in which you will find legal guidance an important asset.