You know that operating a business is challenging enough without addressing lawsuits. You also know that litigation is often a cost of doing business. You can engage in some up-front planning to help your business minimize its litigation risks.
Explore insurance options
You can investigate any number of insurance options designed to protect your business from the potential costs of litigation, including:
- Employment practices liability insurance (EPLI)
- Directors and officer’s insurance (D&O)
- Environmental insurance
- Commercial general liability insurance
You should review these options carefully and consider how a policy may or may not meet the specific needs of your business.
Minimize your personal liability
You may have incorporated your business at the time of its formation. That’s a good first step because forming a corporation helps separate your home, family and person from your business. It shields you from personal liability, but that shield isn’t absolute. If you don’t act appropriately, a court may “pierce the veil” of corporate protection, effectively making you personally liable.
You risk personal liability when you mix your personal funds and business funds. Similarly, you may blur the lines if you fail to separate your business records from your personal records. When you blur the between your business and your personal interests, the court is more likely to pierce the veil.
Steps to take when your business is sued
You can take every step in your power to protect your business from litigation. Unfortunately, many things still lie outside your control. Your business may still find itself facing a lawsuit. In this situation, you can still take action to minimize the potential harm to your business operation.
First, make sure to contact your insurance company. Then, you should identify people and documents that may be related to the litigation and make sure that nothing is deleted or thrown out. Preserving evidence now can help you avoid potential court sanctions. You should also seek advice from a lawyer as soon as possible.
Maintaining acceptable risks
As a business owner, you know litigation is a possibility. You may have to accept this risk. However, you don’t have to accept catastrophe. By taking several key steps, you can limit the potential damage from a lawsuit and protect your valuable interests.