The longer you are in business, the better you understand the potential for facing a lawsuit.
Your company may be prospering, but a lawsuit could threaten everything you have worked for. How do you protect yourself and your business against litigation?
Understanding the risks
As a small business owner, you do not have the protections that corporations enjoy. However, if you must defend yourself against a lawsuit, the court may bring the “corporate veil” into the case. Basically, this speaks to the separation between your business activities and your personal life. The court will want to know whether you keep proper business bank accounts, inventory and payroll records. If the separation between business and personal matters is not sufficient, the party bringing the lawsuit may have the court’s permission to hold you personally liable. This might put your income and savings in jeopardy.
Considering insurance options
In terms of protecting yourself and your business, there are various insurance options to consider, such as Employment Practices Liability Insurance (EPLI), Directors and Officers Insurance (D&O), Commercial General Liability (CGL) Insurance, and, of course, workers’ compensation insurance. Many insurers will reimburse you for the cost of resolving litigation, and some will also pay the costs incurred with your defense.
Developing professional relationships
Despite taking precautions, you may still face a lawsuit at some point in your business career. For this reason, it is important that you develop professional relationships. For example, having the ability to rely on legal guidance will give you the confidence you need to protect yourself and your small business from potentially damaging litigation.