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9 Preemptive Steps Your Business Can Take To Avoid Future Litigation

Feb 27, 2024

When you are starting a business and making plans for the future, you need to be aware that there are numerous pitfalls you could fall victim to that can serve as threats to the stability of your company. Any moment of oversight in your founding efforts or day-to-day operations can lead to a lawsuit, no matter the level of care you put into your endeavors. It’s important to be aware of the aspects of business that can lead to the threat of litigation, which is why it’s essential to work closely with seasoned business lawyers like the ones at Lam Legal.

Below we outline 9 methods that you should be aware of for diminishing the threat of lawsuits against your business.

#1. Document Your Agreements And Double Check Their Legality

When you enter into a business relationship with a business partner, contractor, vendor, tenant, or other entity, you want to ensure that the terms of your agreement are rock solid. In order to protect the integrity of your company, you cannot fall into the trap of relying on verbal agreements. Draw up a contract for all business negotiations and have your lawyer review it in order to ensure its legality and recommend any clauses that will further protect you. When someone breaches your contract or believes you are in violation, you will be able to refer to the official terms of your agreement and enforce them in court if need be.

Contracts are important for obvious reasons, but they are not the only pieces of business documentation that should be established in writing. Company bylaws, employee operating procedures, and company values are all good things to record in order to create alignment throughout your organization and protect the company legally.

#2. Keep Detailed, Accurate Records

Related to the advice from the point above, it’s advisable to make a record of everything you possibly can. Keep minutes during your meetings, archive your emails and other messages, file any contracts or other business documentation, and, perhaps most importantly, keep a record of your receipts and any financial interactions. Detailed, up-to-date records will help you avoid litigation because they create a trail of your interactions and keep your financial comportment above reproof. If a legal entity has to look through your records, dates for agreements and words exchanged during interactions will help uphold your side of the story.

#3. Carefully Read All Contracts And Terms Of Agreement

You don’t want the fine print to catch you off guard. Just as you must review a contract when you are writing it, you must carefully review every contract or agreement you plan to sign. Engaging a business lawyer such as those from the skilled team at Lam Legal can help you review contracts prior to your signing and point out ambiguous language or clauses that would be disadvantageous to you.

#4. Form An LLC

Anyone can start a company, but if the business owners do not make the right moves, they can be held personally liable for any missteps or fallout. The way around this risk is to create a limited liability company (LLC), which establishes a legal identity apart from its owners, meaning that the LLC will assume legal responsibility. Though this step will not directly shield your business from litigation, the formation of an LLC shields your personal assets and those of your business partners and other members of the LLC from the risk of legal action or debt collection. (Note; an LLC isn’t necessarily the best entity for every type of business, so working with a business lawyer to determine if forming an LLC fits with your goals is highly advisable!)

#5. Keep Your Personal And Business Finances Separate

Another essential aspect of preventing personal liability is making sure your business accounts are separate from your personal accounts. When you entangle them, you run the risk of your own personal assets being subject to the debts of your business. Forming an LLC, as discussed above, is a great step toward keeping your personal and business assets separate. However, certain business proceedings can threaten the status of your LLC, including intermingling personal and business finances. You never want to use your own personal accounts to make payments or settle debts because it signals to a courtroom that your own assets are up for grabs.

#6. Cultivate A Respectful Company Culture And Safe Workplace

Be sensible when it comes to the kind of company culture you maintain. You want your employees to work in a professional environment where they can flourish and be productive. Make sure that they are aware of the company’s standard operating procedures, and that these procedures make space for measures such as a sexual harassment policy. Be cognizant of the kind of people you hire. If, for example, one of your employees has sexual harassment complaints against them or you are perceived to be condoning their behavior, your business can become liable in a sexual harrasment lawsuit.

Make sure your company values and procedures are clearly outlined and that they are being followed. To this end, it is wise to hire personnel for an HR department who are equipped to handle disputes between employees and keep documentation of any harassment or other harmful activity.

You also want to make sure that your workplace is safe in other respects. Make sure that your company is in compliance with any health and safety standards–for example, OSHA regulations–and be responsive when you are made aware of any shortcomings.

#7. Protect Your Intellectual Property

All businesses possess some form of intellectual property (IP), even if it’s just your name and your logo. The World Intellectual Property Organization (WIPO) defines IP as “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” Registering your IP under a trademark, copyright, or patent as appropriate will prevent anyone else from profiting off your creations. Protecting your intellectual property has the dual benefits of preventing anyone from infringing on your creations and strengthening your case against litigators who seek to infringe on your intellectual property.

#8. Invest In Business Insurance

When you have liability insurance for your business, you can minimize litigation risks. There are several different types of liability insurance depending on the type of business you operate, and the funds from the insurance will be able to cover a huge variety of incidents–there is even cyber liability insurance, which will help protect your company from cyber-related threats like data breaches. When a claim is made against your company, insurance agents will thoroughly investigate claims to determine fault and establish payouts.

#9. Engage An Experienced Business Lawyer

Finally, there is no way to fully cover your business from lawsuits. In some ways, lawsuits are a routine part of business operations. The most effective way you can shield yourself from litigation is to engage an experienced business lawyer who can help guide you through common legalities, such as contracts, and step up for you when a risk blossoms into a full-fledged lawsuit. This lawyer will know the ins and outs of your business and will be able to defend you with their thorough knowledge of the law and your company’s operations.

The team of hard-hitting business lawyers at Lam Legal has a combined total of over 75 years of experience. Our team is multilingual and trial-tested, and we have worked with a variety of corporations of all sizes. We can help with matters ranging from contract disputes and debt collection to litigation, which we always try to resolve at minimal cost or impact to you. Reach out today to schedule a free consultation and learn how we can be effective at helping your business grow while minimizing risk.