How Not To Get Sued
By Business Desk
Friday, April 14, 2017.
It seems like a fact of life: companies get sued. Everybody from GE to Walmart has been a victim. But why? Part of it has to do with the litigation culture. If people think they have a chance at making some “free” money from a corporate giant, they’ll take it. But part of it also has to do with the fact that large companies still do some pretty dumb things that get them in trouble with the law. It doesn’t have to be this way.
Small companies aren’t out of the woods either. It is estimated that around 50 percent of all small businesses will face some form of legal problem in the first five years of operation. That’s a significant threat and one that should be taken seriously. Many entrepreneurs wonder why the odds are so high and what they can do about it. Here are some ways not to get sued and to protect your company.
Protect Your Files
Most businesses, including small businesses, are becoming increasingly reliant on their files and data. They need those files to carry out their essential functions and meet their contractual obligations. The problem is that startups are under constant threat, both from malicious actors out on the internet as well as stupidity in their own offices. All files need to be backed up regularly - something which is becoming easier and easier, thanks to the cloud. If you store files onsite, make sure that you have some kind of backup either offsite or at a data center in the cloud. Businesses that don’t backup their data are at risk of not being able to deliver the services that they have been contracted to perform and could ultimately wind up getting sued, something nobody in your company wants.
It’s also worth asking yourself whether, in the event of an emergency, like a flood, your company could continue to function. Could you carry out your contractual obligations, or might you end up getting sued?
Think about ways you could build redundancies into your operation, like having portable generators in the event of an electricity outage.
Insure Your Business
The good news about business insurance is that it is a lot easier to get and manage than you might expect. Most insurance companies offer packages that include both liability and employer’s insurance, based on the risk that your business operations pose to the public. Some companies, like those in construction, have fairly steep rates, thanks to the risks inherent in those industries. But most, like design and software startups, have relatively low risk, meaning that you’re able to pick up insurance for hundreds, rather than thousands of pounds.
Creative Commons Images
Contractors need to be covered too. As this page on professional indemnity cover by Kingsbridge Contractor Insurance explain, it's important to know what you need cover for. The main reason for getting cover is to protect against errors and omissions which cost the customer or the client money. You could also be accused of not living up to the contract and be forced to pay out of your own pocket.
Directors of companies are at particular risk, especially when a company gets sued. For this reason, it might be worth taking out directors and officers liability insurance, a type of insurance that helps to limit personal losses in the case of a larger suit against your company.
Legally Separate Yourself From Your Firm
Most contractors and small business people operate their businesses as sole traders. While this might make doing taxes easier, it opens up a host of legal issues which many independent business people and traders aren’t aware of.
The main problem is the problem of personal liability. If a sole trader or partnership is sued, the court can legally seize their assets, including their car and their house, to pay the claimant.
The best way around this is to create a limited liability company - a separate legal entity or “person” which is distinct from your own personal finances. In these situations, even if your business goes into debt and can’t pay back the money it owes, the owner isn’t at risk of having their personal assets seized. This is particularly useful for businesses that want to defend against being sued, since only the company, not the individuals are being sued for their assets. Legally separating your business from your personal finances is the safest way to proceed, even if it involves slightly more paperwork.
Be Careful What You Say And Do
In today’s litigious culture, businesses have to be very careful what they say and do. Celebrities and other companies are hypersensitive to anybody sullying their good name - since their brand is what makes them valuable - and they’ll take whomever they need to court to protect it. As a result, business leaders tend to be very diplomatic in what they say in public compared to what they think in private. They avoid saying how much they hate a particular person or company and continue to act professionally at all times, especially when speaking in a business capacity.
Another way companies can get into trouble is by falling in with the wrong crowd. Some businesses that have impeccable working standards often contract out work to companies whose practices are questionable. Though your company might not employ any of the practices of a company that you work with, you could still be implicated if they are discovered to be behaving illegally. Their demise could bring your brand down with it if they are associated in the minds of your customers.
Grab A Legal Contact
Practically everybody in business has a legal contract they can go to for immediate advice if they get sued. This person should be familiar with the local laws and customs in the area that the firm operates. The legal contract should also be relevant to the situation of the company. For instance, if your business is expecting to be challenged by the tax authorities, then it makes sense to retain a tax attorney. Find an attorney with excellent legal references, or use your contacts to recommend one.