The Impact of Lawsuit on Your Business and How to Avoid Getting Sued

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It is estimated that over 100 million lawsuits are filed every year in the U.S. In a 2017 survey conducted by Statista, 27 percent of businesses worldwide reported more than 21 lawsuits commenced against them in the last 12 months.

Large companies in the country spent a total of $22.8 billion just for litigation alone.

Every Business Is at Risk

Nonetheless, it is not only the big names in the business world that faces litigation. Small businesses are at risk of being sued as well. In a study by the Small Business Administration, 36 to 53 percent of small businesses face litigation every year.

In this day and age where no one could bear with even the slightest inconvenience, the first reaction of most people is to file a suit. 43 percent of small businesses even reported they were threatened with frivolous suits.

A lot of this unnecessary litigation has sent countless small businesses into bankruptcy. Unfortunately, organizations in the small business sector do not have enough resources to pay for all the incredible litigation expenses.

Impact of Lawsuit on Your Business

On average, a lawsuit could cost a defendant $1.1 million, covering exorbitant lawyer fees, filing fees, and other costs. For small and medium-sized businesses, this amount is considerable. Not to mention, you have to sacrifice your time to attend the litigation and the emotional turmoil that such litigation causes you.

Apart from that, a lawsuit against your business could significantly tarnish your organization’s reputation and the people in it. For a business to survive, keeping a good reputation is crucial.


Why Companies Face Lawsuits

There are two sides to every story.

For customers or clients to take legal action against your company, it could be that they are not satisfied with the quality of service, or they suffered an injury due to the negligence of your business. Acts of discrimination, breach of privacy, and breach of contract are also some reasons suits are filed against your business.

In other instances, employees may sue their employer for several reasons. The most common reasons for an employee to file suit against your company are acts of discrimination based on gender, nationality, or disability, illegal termination, sexual harassment, and employer negligence.

Most companies, especially small businesses, overlook the necessity of being proactive in protecting themselves from litigation. It is only during the last minute when they receive a copy of a court complaint that they come running around taking protective measures from lawsuits.

It can be daunting and expensive to “lawsuit-proof” your business. But all the efforts you take are worth it in the end.

How You Can Protect Your Business from Getting Sued

1. Maintain Business Image

Business image is crucial. For example, if you are running a nursing home business, you have to ensure that the staff and doctors you hire are reliable and uphold ethical treatment of the patients. You would not want a malpractice lawyer to come knocking at your door.

Even in personal lives, business owners and employees should be discreet and avoid conduct that puts the business in question. This includes conducting other dealings that conflict with your company’s interests.

2. Hire a Reputable Lawyer

Even before opening your business, you should already have competent lawyers with you. Not only can your counsel give you proper legal advice when starting a business, but your counsel could also recommend calculated steps in case you get sued.

It is highly suggested that when retaining an attorney for your company, you hire someone familiar with local laws and customs of the business location. Having certain legal expertise is also a bonus, such as a tax attorney.

3. Incorporate Your Business

Owning and operating a business as a sole proprietor is a no-brainer. But it can get pretty ugly if your business is sued. As a sole proprietor, the court can easily attach your individual assets to answer for any liabilities. It could leave your house and savings at risk.

The safest way to protect your personal assets from being targeted in a suit is to incorporate your business. Through incorporation, you separate your company’s finances from your own.

4. Get Insurance

Purchasing a business insurance package protects your business financially. There are various types of business insurance, and all of them could cover up for any liability of your company. But before buying one, make sure you are aware of the coverage in the policy.

No matter how careful you are in running your business, somewhere along the way, your company will eventually face a lawsuit. Before that happens, take action to protect your business interests.

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