Many small businesses experience legal problems and lawsuits. According to research, approximately 43 percent are threatened with litigation each year. Ongoing litigation is costly and can have devastating consequences on businesses, even if they reach the best available outcome in the case. While all companies, small and large, are subject to the possibility of lawsuits, major corporations are more likely to have the money, time, and resources to offset the potential damages. Sadly, small companies do not enjoy the same advantages as their larger counterparts. Therefore, laying out guidelines to protect the organization is crucial. Schedule a meeting with a seasoned attorney at Harrison Law, PLLC, by calling (480) 320-2310 to learn more about small business lawsuits and strategies for protecting yourself and your enterprise.
Why Small Businesses Get Sued
Small businesses face lawsuits and litigation each year for a variety reasons, with common examples including slip and fall accidents, discrimination, breach of contract, and copyright infringement. While small business owners are often focused on marketing to find new business, cash flow, and employee management, preparing for the potential of lawsuits is also critical. Unfortunately, many small businesses will face legal problems at some point. Employees, vendors, clients, and other companies can all file lawsuits. When a business is caught unprepared, the financial impact can have devastating consequences. Unfortunately, no matter the outcome, the business is likely to suffer financial losses.
According to the Small Business Association, lawsuits and ongoing litigation are expensive and time-consuming, causing emotional hardship for small company owners. The significant chance for lawsuits is modifying the way small businesses operate. Sadly, most lawsuits small businesses face are baseless and trivial but take a substantial toll on the company’s financial health. An attorney with Harrison Law, PLLC may be able to help Arizona enterprises and entrepreneurs protect their companies’ interests against the risks of small business lawsuits.
The Top Reasons Businesses Face Litigation
Most company owners realize that integrity, providing excellent customer service, and following human resources best practices are crucial for their organization’s future success. However, even the most cautious businesses could face unpleasant litigation at any given moment. Over 50 percent of civil lawsuits target small businesses, and companies with an average annual revenue of one million can expect to spend approximately $20,000 in litigation related to frivolous lawsuits. Nine of the most common reasons small businesses face litigation include the following:
- Auto accidents involving company vehicles
- Employee lawsuits for discrimination or harassment
- Intellectual property right infringement
- Wage disputes and unpaid wages
- Premises liability, such as slip and fall injuries and unsafe working conditions
- Defective products and other product liability issues
- Contractual mistakes and disputes
- Legal and regulatory compliance issues, including data protection, privacy regulations, and cybersecurity laws
- Selection of the proper business structure
Tips To Protect Your Small Business from Costly Litigation
Small businesses face approximately 12 million lawsuits yearly, and the average cost of litigation is close to at least $54,000. Every small business is vulnerable to lawsuits and their attendant risks of ongoing and expensive litigation. These legal troubles can take an emotional toll and ruin the company’s reputation. They can even put small companies out of business altogether. For these reasons, many attorneys recommend business insurance as a crucial investment for small business owners. A good business insurance policy can protect a small company from everyday risks and safeguard the business’s assets against lawsuits and financial losses. Some other tips to protect small businesses from lawsuits, loss of countless hours, and economic hardship, include the following:
Choose the Right Business Structure
Many small company owners operate their businesses as sole proprietorships, which can be highly problematic if lawsuits occur. In many cases it can be a wise decision for a business owner to separate their personal assets from the business by creating one of several organizational structures to protect the company’s liabilities. Some business structure options in Arizona include the following:
- Creating a trust to own the business
- Incorporation of the company
- Forming a limited partnership
- Founding a Limited Liability Company
Every business has unique needs, and determining the right business structure can help to protect it from avoidable and costly litigation.
Keep Accurate and Updated Records
Accurate records are one of the primary defenses against lawsuits. A company’s management must ensure that their team documents everything from, client contracts and offer letters to employees’ working hours and compensation agreements to vendor arrangements. Comprehensive documentation provides leverage for solid and effective negotiations to reach settlements with a plaintiff quickly and with minimal fuss, if and when legal actions occur.
Develop and Implement Company Policies and Procedures
Presenting clearly defined company policies and procedures in the company handbook can help businesses to avoid lawsuits based on their internal practices. Every company must create detailed hiring, termination, and discipline guidelines and follow the company procedures even when a given incident seems minor. According to Strategic Human Resource Management, small companies benefit from consistency, handling every complaint or issue in the same manner. If the company has a procedure for addressing problems and does not follow it in some cases, they open themselves up to litigation and financial losses.
Put Everything in Writing and Keep Your End of the Deal
Negotiating contracts and making business decisions based on purely oral agreements can quickly lead to misunderstandings and legal trouble. As a best practice, experts agree that businesses should get, and put, their deals in writing and then deliver as the contract states, every time. While everyone would like to think that most people and companies are trustworthy, simple human error, as much as deliberate artifice, makes it advisable to ensure the availability of an unambiguous written record, to which all can refer.
Consult With an Experienced Small Business Attorney Today
Unfortunately, the potential for lawsuits is a reality for anyone running a small business. The need to prepare a defense strategy against litigation is an unfortunately common eventuality for anyone involved in commercial operations. Obtaining the right insurance policies and taking steps to protect your business from devastating financial losses are among the most effective ways to protect the future of your enterprise, as well as your own emotional well-being and peace of mind. While the risks to which a company is vulnerable will vary by industry, every business is at risk for certain kinds of lawsuits, regardless of the area of commerce. Successfully launching a small business is challenging and presents many complex issues, as well as a massive investment of money and time, even under the best circumstances. Call a knowledgeable business attorney at Harrison Law, PLLC, at (480) 320-2310 for help with small business lawsuits.
© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
