Imagine for a moment that your business is the target of a lawsuit. Perhaps one of your products caused an allergic reaction in one or your customers. Or maybe your biggest contract fell through and you could no longer afford to pay your supplier. In the business world, things happen. That fact is why business lawsuit prevention strategies are so important if you want your business to not only survive, but flourish and beat out the competition.
If you want a few business lawsuit prevention strategies for your company, consider putting these protections in place:
Choose Who You Do Business with Carefully
Our first tip might seem like a no-brainer, but many people have regretted doing business with someone at some point—and they knew from the beginning that they were going to be trouble. You might not be able to read someone’s motivations or character just by looking at them, but if your gut says that something’s off, walk away. Your business relationships are the arteries that carry the lifeblood of your business. Choose wisely.
Structure Your Business in a Way That Protects You
Before doing anything else today, think about what would happen to you personally if your business had to fight off a lawsuit. Would you be protected? Depending on the structure of your business, you could be personally liable for any claims brought against the company. Consider a structure that separates your business and personal assets, such as a corporation or an LLC.
Load up on As Much Liability Insurance as You Can Afford
Even if your personal assets are protected by your business structure, your business assets are still at risk without proper business lawsuit proctection measures. In fact, anyone injured on your property can sue. With enough liability insurance, you can keep your business, as well as yourself, from going bankrupt because of an accident.
Include Disclaimers in All of Your Business Contracts
From big deals to simple supplier contracts, all of your business agreements need to include disclaimer language to protect you from liability. Two types of disclaimers exist—limitation of liability and warranty disclaimers. A limitation of liability disclaimer makes it so all you have to do is refund the money. The customer or business contact can’t sue you if you return the money paid.
On the other hand, a warranty disclaimer concerns the quality of work for a product or service. Even if you don’t expressly guarantee that your work will be to a client’s satisfaction, you can still be held legally responsible. That means they can sue you. A warranty disclaimer can prevent that from happening.
Business Lawsuit Prevention Bonus: Transfer Assets
If you want to protect your personal assets, you should consider transferring them to your spouse or another family member. Just be aware that doing so requires a lot of trust between you and the other party. It’s not been unheard of for a family member to cheat their relations out of their property. Putting your valuable assets in your spouse’s name, also commonly known as the “poor man’s asset protection plan,” can protect your property if your spouse does not have significant liability exposure. It is certainly a cheap option. However, in many cases, taking this action by yourself can prove inadequate, making the money saved during the transfer a moot point.
Another option—one that definitely provides the best protection for your assets—is to set up an irrevocable trust. An irrevocable trust removes from your possession any assets you designate as grantor to be included in said trust. Because you cannot revoke this type of trust (in other words, you cannot take back your assets into your possession, thus the name), creditors and other parties who hold a judgment against you cannot seek these assets in a lawsuit. Because your specific situation can complicate matters, it is often best, if you find yourself needing to change ownership of your property, to consult with an experienced business attorney to transfer your assets to your partner.
Do you need help with business lawsuit prevention? If you want expert help setting up your business for success, contact Gonzalez Law today for a no-obligation consultation. Se habla español. 305-851-2189