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5 Tips on How to Protect Your Small Business from Lawsuits

Growth Hacking | Aug 30, 2019

Running a business is a huge undertaking. As a business owner, you need to make sure you’re doing everything you can to keep the business afloat and running smoothly, whether it’s making sure the company is profitable, employees are stable, and any risks are limited. 

One big risk that business owners tend to overlook is lawsuits. Until your business is hit with a lawsuit it may not be top-of-mind, but lawsuits can be costly and time-consuming, so you don’t want to be suddenly faced with this burden unprepared.

Here are five ways you can protect your business and avoid getting sued. 

5 Tips on How to Protect Your Small Business from Lawsuits

5 Tips on How to Protect Your Small Business from Lawsuits.

Tip #1 Separate Your Business From Yourself

If your business isn’t incorporated already, make sure to take this first step as soon as possible. Incorporating your business separates your personal finances from any liability related to your company, so in the event of a lawsuit and settlement, the finances won’t be collected against your personal assets. 

It’s common for entrepreneurs to own and operate their companies as sole proprietors, but this can tie them into their business when it comes to assets. In the event that the business is hit with a lawsuit, the owner’s personal assets—their home, car, bank account, etc.—can easily be attached to the lawsuit.

Incorporating the company makes it easy to avoid this, and keeps personal wealth safe, even if the court finds in favor of the plaintiff, and the business is lost.

Tip #2 Get Insurance

While this won’t keep your business from getting sued, getting liability insurance for your company can ease any financial strains if your company is involved in a lawsuit. In the event of a lawsuit or financial settlement, your insurance company can help cover any legal fees or liability costs involved.

There is a wide range of liability insurance policies available, so it’s critical to do some research and determine which is best for your business. General liability insurance is great for protecting businesses against an employee filing a lawsuit after being injured at work, while errors and omissions insurance is beneficial for companies to protect against a lawsuit filed by a client accusing the owner of not living up to a contract or making a mistake during a project.

It can be overwhelming trying to navigate these policies, so talking to an insurance broker can help if you aren’t sure where to start.

Tip #3 Draft Workplace Policies

Having written workplace policies and procedures, including employee and employer code of conduct, can help protect your business and prevent lawsuits. Providing staff with an employee handbook that outlines all policies regarding work, pays, expectations, and conduct will help them learn the procedures and avoid any miscommunications or misunderstandings. 

Tip #4 Be Ethical

Your business practices should be ethical, moral, and honest at all times, no matter what, in order to operate fairly and avoid discrimination lawsuits from employees and firms like Charleston Law, who specialize in employment law.

It should go without saying that workplace policy should be free of any discrimination, that employees and clients should be treated fairly and honestly, and the company should act professionally at all times. 

Tip #5 Provide Excellent Customer Service

Customers or clients may want to sue your business because they’re upset, and while it’s uncommon, it does happen. In order to protect your business from angry customers, always practice exceptional customer service.

It can make a difference when you’re trying to calm them down, when dealing with a complaint, or when dealing with the threat of a lawsuit. Employees should be trained on how to manage escalated conflict in order to de-escalate the situation and avoid a potential lawsuit. 

Layla Fabian


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