Prevent Lawsuits: 6 Tips to Protect your Business From Litigation

Businessmen seated at a conference table present their case before an arbitrator holding a gavel.

Whether you are a small business owner or established C-suite executive, mitigating the risk of litigation to your business should be a priority. Litigation consumes time, money, and emotional bandwidth for everyone involved – but is something you can take proactive steps to avoid.

With a solid foundation of written agreements and by-laws and by following essential best practices, you can avert some litigation and minimize the costs, liability, and reputational repercussions of unavoidable litigation.

1. Put It in Writing

No matter the size or scope of your business, you should have written operating agreements, by-laws and contracts to govern all of your business relationships and transactions.

From vendor, supplier and employment contracts to agreements between partners and shareholders, creating clear and detailed contracts can help establish expectations, define the rights and duties of each party, outline ways to efficiently resolve disputes and unexpected events, and limit your exposure to being sued. Working with an attorney when drafting contracts can ensure you address risks and exposures you may not have considered.

2. Protect Your Reputation

Be mindful of the brand and image of your business. By cultivating a culture of respect and integrity within your company, you can help limit exposure to claims from clients, competitors, and company staff related to discrimination, conflicts of interest, libel, slander, and even misappropriation of theft of trade secrets.

A culture that places a premium on ethics can also prevent potentially harmful or risky relationships with unscrupulous companies or clients that may come under fire and bring you down in the fallout.

3. Keep Accurate Records

Good corporate recordkeeping practices can be a life-saver for businesses in times of potential litigation.

Maintaining accurate and well-organized documentation for transactions and business dealings can help clarify the rights and obligations of contracted parties and resolve disputes before they begin to drain your resources. The ability to produce clear and consistent financial records quickly can also help in cases where potential litigation or liability involves claims of financial mishandling. When reviewing a case, a judge will take well-ordered accounts and records into consideration.

4. Structure Your Business Finances Separately from Your Own

In the event that your business is sued and a judgment is issued, you may be on the hook if you have not structured your business in a manner that keeps your personal assets separate.

Although there may be options for entity formation and corporate structure, one common way to obtain this protection is to establish business ownership in a trust. When properly established, a trust can usually limit recoverable assets in civil claims to those of the business and not business owners.

Whatever structure you choose, you should also be aware of the additional tax, regulatory, and reporting obligations they create. An attorney can advise you on the best corporate structure for your business and walk you through the implications of each.

5. Protect Your IP

Trade secrets and intellectual property are among your company’s most important assets.

By proactively protecting your IP through the trademarks, copyrights, internal policies, and non-compete, confidentiality, and licensing agreements, you can better protect your business’ propriety information and potentially limit risks of litigation.

How? Taking steps to safeguard confidential information can help ensure you have legal remedies. Should it come time to establish cause of action when your trade secrets are stolen or misappropriated, you will be prepared to demonstrate that reasonable measures were taken to maintain the information’s secrecy. This will put you in a better position to deflect claims from patent trolls or litigious enterprises, or assert claims against competitors or former employees that want to profit from your intellectual property.

6. Be Prepared with an Experienced Attorney

Of course, protecting your business takes more than adhering to a few simple steps. It requires a dedicated investment in proactive protections and ongoing self-assessment in order to truly pay off.

By working with qualified counsel, you can take the necessary steps to mitigate risk in ways that work specifically for your business and your ultimate goals.

At Hendershot Cowart P.C., our attorneys represent entrepreneurs, small business owners, and established enterprises in a range of proactive and responsive matters. From drafting contracts and compliance plans to dispute resolution and safeguards for your most important information, we can assess the needs of your business and what we can do to help. Contact us to speak with a lawyer.

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