Breeding Henry Baysan

As a business owner, are you prepared to deal with a lawsuit?

During your career as a business owner, you may have to contend with at least one lawsuit. Being proactive will help you cope and hopefully succeed if you ever face litigation.

Here are four major points to keep in mind in preparing for a potential lawsuit.

1. Understand the boundaries of personal liability

One of the benefits of owning a corporation is the separation it offers between your company and you as a business owner. There is a “corporate veil” that provides protection for your personal property. However, if you are a sole proprietor or own a small business with your spouse, you must employ “corporate form,” such as keeping proper payroll and inventory records. Otherwise, you risk your savings and personal property if a lawsuit against your business arises.

2. Consider your insurance options

Take a look at the various insurance products available to see what is best suited to your particular business. In addition to a workers' compensation policy, you might need Employment Practices Liability Insurance or Commercial General Liability coverage, among other options.

3. Implement a litigation hold

If you anticipate a lawsuit, establish a “litigation hold.” This means ensuring no deletion or destruction of documents related to the potential lawsuit. Stop any shredding process and make sure your employees understand that they must preserve any information or documents related to the suit. If someone deletes or discards a document necessary to the case, the court can impose penalties that could hurt your business.

4. Seek counsel

Many business owners establish a business relationship with an attorney well in advance of the arrival of any potential lawsuit. Seeking legal guidance may help in devising a plan that serves to prepare for possible litigation scenarios. Business owners who take this step early in the life of their company may protect their business, savings and personal property.

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