7 Tips to Help Your Business Avoid Litigation

Litigation is expensive. At best, it’s an unwanted entry on your business’s balance sheet. At worst, a lawsuit could mean going out of business— if the businesses assets must be liquidated to pay a judgment or if the businesses resources must be used for litigation expenses. The following are tips to avoid or limit the impact of litigation.

1. Keep good records.

Without good records, proving what was actually said or done by the parties to a lawsuit is a difficult, if not impossible, task. Further, good records can effectively destroy a factual dispute. Good records can result in a dismissal of the case or at least limit the case to issues of law, rather than factual issues, which often makes the case easier and less expensive to manage. Even though it may seem tedious, designate a note-taker at all business meetings. Make copies. Save emails. And, if you have an important phone conversation, follow it up with a letter or email stating, “As we discussed on the phone…”

2. Insurance. Insurance. Insurance.

Your business can probably not have too much insurance. Talk with your agent about insuring for your specific risks. If insurance steps in in the event of a dispute, it often means you can step out, let them handle the dispute, and return to focusing on running your business. Insurance isn’t a silver bullet, but it goes a long way.

3. Corporate structure.

Make sure you are utilizing the corporate structure that suits your tax goals and limits your liability. When signing documents, make sure that you are signing in your business capacity, not in your personal capacity. If you do not adhere to corporate formalities, you may end up with a lawsuit even if the business is judgment proof, i.e. goes out of business and becomes insolvent. Don’t be a target, and protect your personal assets from business creditors and other claimants.

4. Have well defined risk management policies.

Spend the time identifying risks in your particular industry. Then draft and enforce policies that incorporate the best practices for handling your particular risks.

5. Read documents before you sign them.

You might be saying to yourself, “no shit.” But, it really is important to point out that if you have concerns about what a contract or other document says or means, do not be afraid to say “I’d like to get a second opinion on this,” and take it to your lawyer. Courage includes admitting when you are in over your head, and not being afraid to ask those who can help you answer the right questions. Don’t sign a document without reading it, and don’t be a victim of your own pride.

6. Do not delay responding to crisis or potential crisis.

Whether an accident, disagreement, or mistake, sitting on your hands is foolish. Gather your team or sit down by yourself and make an action plan as soon as possible. Mitigating damages often means identifying where additional money could be lost and stopping the hemorrhaging. Regardless of who is at “fault,” acting quickly and thoughtfully to prevent further damages is always the best course of action.

7. Be likable.

Goat Fight

People often find themselves in court because they either cannot resolve personal problems or cannot stop from creating them. All the good “mom-clichés” apply equally to the business world as they did on the kindergarten playground: Be Polite. Do unto others as you would like to have done unto you. If you can’t say anything nice, don’t say anything at all. Take the high road. And, if you are dealing with an asshole, don’t be goaded into a fight. You can choose who you do business with—ask yourself whether maintaining a business relationship is worth it, or whether you should politely decline from additional orders, jobs, etc.

Follow these 7 tips and you are likely to avoid most business disputes.

PhotoMarshaWheatley | Flickr
Photo: Tc Morgan

If you would like to learn more about risk management, limiting your liability via business entities, or resolving  a potential or current dispute, please contact us today.

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