Law

3 Safeguards to Protect Your Business from Crippling Lawsuits

  • You work hard to grow your small business, but one lawsuit can ruin everything you worked to achieve. Safeguards can be put in place to help you protect your business from a devastating lawsuit that can cause you to go bankrupt and potentially lose your personal assets in the process.

    You can take the proper actions today to safeguard your business from lawsuits:

    1. Incorporate Under a Legal Structure That Separates You From the Business

    It's cheaper to operate your business as a sole proprietor, but there are major risks involved. Anyone can be a sole proprietor, but if their "business" is sued, guess who is liable? They are. That's right.

    Sole proprietorship isn't a separate legal entity, so you'll be liable for any and all lawsuits against your business.

    This means a settlement may result in you losing your:

    • Automobile
    • Savings
    • Home
    • Cash
    • Real estate


    Incorporating is the easiest method of separating a business from its owner, and it's rather straightforward. Business lawyers can help you choose the right way to incorporate and the proper legal structure to choose, too.

    When incorporating, you'll also need to worry about:

    • Fees
    • Filings
    • Additional laws


    Incorporating is more complex than a sole proprietorship in most ways, but since the business is separate from the owner (you), your assets are safeguarded in any lawsuit.

    The exception to this rule is if you co-mingle your finances. If you use your own bank account to buy products or use your business bank account to pay your car loan, you're not doing your duty to keep your business and personal assets separate.

    2. Insure Your Business

    Insurance may seem like an additional cost that you can’t afford right now, but what if you're sued in the future. The cost of insurance is negligible if someone slips and falls in your building and suffers brain damage.

    Liability insurance is the minimal amount of insurance every business should maintain.

    Personal injury can include but is not limited to:

    • Slips and falls
    • Workplace injuries
    • Car accidents
    • Boat accidents
    • Product defects
    • Dog bites


    Insurance adds an additional layer of protection between you and your business to ensure that your operations can continue even in the midst of a costly lawsuit.

    The size of your business and the operations conducted will dictate how much insurance coverage you need and the type of coverage to take out. You'll need to have insurance for:

    • Liability
    • Company-owned vehicles
    • Workers' compensation
    • Product liability
    • Interruption of service
    • And many additional insurance types, depending on your business


    It's important to consult with an insurance advisor who will help you navigate your business's insurance needs.

    3. Enforce Strict Policies

    Businesses must enforce strict policies at all times. When policies are written, this works to prove that a business has outlined proper procedures and guidelines for employees to follow. Policies are be used to demonstrate that an employer:

    • Set guidelines for employees to follow
    • Worked to prevent liability and harm


    Training can also be utilized to help protect your business from lawsuits. The issue, and it's one that many businesses do not know about, is that an employer is responsible for the actions of employees.

    This falls under vicarious liability.

    What this indicates is that an employer is responsible for the negligent acts of an employee. The acts must have occurred during the worker's course of employment, and as an employer, you should:

    • Provide proper training
    • Provide good supervision


    If an employee harasses a customer or performs an act that hurts a customer or client in some way, you may be sued alongside the employee.

    Contracts can also be utilized under this section to help protect your business. The goal is to alleviate yourself from any circumstances that are out of your control.

    You have a duty to invitees, or persons who enter your premise, to protect all invitees. If an employee causes an injury or performs another action that results in a lawsuit, you may be responsible for their actions.

    There are different statuses for invitees, and it's best to consult with an attorney to protect your business.

    Lawsuits can and do happen, and if you don't have the right safeguards in place, you may find yourself with fines and settlements you're unable to pay. Proper safeguards and measures can ensure that your business can continue to operate without fear of one lawsuit ruining the entire operation.

Related Stories

The Effect of New Technologies on Plastic Surgery

3 Safety Management Software Options for Businesses

20 Free Marketing Tools Every Entrepreneur Should Know About