Many business owners will face a lawsuit at some point in their careers and the consequences can be devastating.
If you are a small business owner, would your company survive having to defend against a lawsuit? It is a good idea to understand what might happen and to prepare for an event you hope will never occur.
Understand personal liability
If you own a small business and are operating outside the so-called “corporate veil,” someone who brings a lawsuit against you can hold you personally liable for an alleged wrongful act, such as failing to pay prevailing wages to employees, for example. The court will want to determine whether you are following corporate form such as filing your taxes property, keeping personal and business bank accounts separate and maintaining proper payroll records. Defending against a lawsuit can cost thousands of dollars.
Take next steps
Look into insurance options that can protect both you and your business. Examples are Directors and Officers Insurance, Employment Practices Liability Insurance and Commercial General Liability insurance. If someone does sue you, there are immediate internal steps to take:
- Initiate a “litigation hold” and identify the whereabouts of hardcopy and electronic information related to the lawsuit
- Suspend any automated processes that delete or destroy documents or risk penalties the court might impose due to missing information
Rely on relationships
You no doubt have outside professionals you can turn to for assistance, such as an accountant and a financial advisor. Legal guidance will also be crucial if threatened with a lawsuit. Professional relationships are important. They are part of putting a plan in place to protect your business and bolster your confidence level in the event anyone ever sues you.