No business owner likes to think about the possibility of a lawsuit, but a small business owner is especially vulnerable if litigation threatens.
How do you protect yourself and your company against a lawsuit that could devastate the business that is a major part of your life?
If you are a sole proprietor or perhaps own your business with your spouse, your personal income and property are at risk if a lawsuit is on the horizon. You may not have a “corporate veil” for protection, but if you go to court, the judge will want to know about “corporate form.” This means, for example, whether you properly keep both business and personal bank accounts and maintain appropriate payroll and inventory records.
Depending on the number of employees you have, you may already carry a workers’ compensation policy. However, there are other insurance products that will provide protection if a lawsuit arises. Look into Employment Practices Liability Insurance, Directors and Officers Insurance, Environmental Insurance and Commercial General Liability Insurance.
Imminent legal trouble
If litigation is already underway, your first responsibility is to initiate an internal “litigation hold.” This refers to securing any documents that may relate to the claims in the lawsuit. This is important since the court may impose penalties if it finds that you have lost, thrown out or deleted such information.
Your next step is to contact your law firm about the impending suit. It is essential that you develop a relationship with an attorney who will support you and help resolve the situation that is threatening your business, your income and your future.