5 Tips To Legally Protect Your Small Business

If you’re a small business owner, you’re in charge of doing everything in your power to limit risk so your business can run smoothly. One important risk to limit is the possibility of a lawsuit. But how exactly does one work to reduce the risk of a lawsuit? If you want to avoid getting in legal hot water, take these five actions:

 

1  )  Be careful of what you say and do

Business owners and employees alike need to make sure they don’t conduct questionable business or make questionable public announcements. Make sure you avoid any statements that could be construed as slanderous or libelous. In addition to being careful of what you put out there, you have to make sure you’re not doing business with unscrupulous people. You may not think this is a big deal, but it will have a severe repercussions if the company takes a hit and your name is linked to the company or person. You should also avoid conflicts of interest in order to stay out of legal trouble.

 

2) Hire a good attorney

As a business owner, you should have a ready legal contact who can advise you on how to act if you are ever sued. It’s a good idea to interview attorneys when your business first starts up. Make sure your attorney is familiar with the local laws in the business’ area of operation. If you need an attorney with expertise in a particular field, try to retain one. Hire a tax attorney if your company is expecting legal changes from the International Revenue Service (IRS).

 

3) Separate yourself from your business

While it may seem like a good idea to own and operate your business as a sole proprietorship, this can pose a problem in the event that your company is sued. If this occurs, one can easily attack or attach your legal assets in a court of law. These assets can include your car or your home. To avoid this, you should have a trust own the business. A trust is a legal entity that can own property, cash, businesses, securities, and a number of other assets. Typically, a trust files its own tax return. When someone uses a business that is owned by a properly established trust, the only assets that can be attacked or attached in a court of law are the assets in the trust itself.

 

Another option is to incorporate. When you incorporate, your house and personal wealth are safe from attack, even if you lose your business in a judgment. Incorporating can be complicated, however. There are a number of laws, reports, and taxes that the government requires for a corporation.

 

4) Get insurance

It’s crucial that you obtain liability insurance. If a customer slips and falls in your place of business, for example, liability insurance can save your from a law suit. If you’re an insurance agent or a consultant, you may have to get errors and omissions coverage. This insures the business in case a customer accuses the owner of making an error or not living up to a contract.

 

If you have a large business with a formal board of directors, you may want to secure directors and officers liability (D&O) insurance. This insurance protects your personal assets in the event of a large suit against the company. In addition to purchasing insurance, it’s a good idea to build protection into your contracts.

 

5) Keep your files protected

If your business, like most businesses, operates largely on computers, you need to emphasize safety requirements for your computer system. Make sure you have security software on the system. If you lose key files, this could lead to legal action from clients. Make sure you have a set of backed up files to refer to. Do backups regularly and tell your clients which you employ. It’s a good idea to keep this backup files in a location other than that of your business, or to buy a fireproof safe to put them in.

 

In today’s world, lawsuits are not uncommon. If you’re a small business owner, being sued is a very real possibility. It is crucial that you take the measures necessary to stay out of any legal trouble, and to be prepared for any lawsuits that may come in the future.