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Avoiding Legal Action

One of the most frightening aspects of owning your own business is the fear of being sued. According to research conducted by the National Federation of Independent Business (NFIB), in recent years, more and more frivolous lawsuits have been brought against smaller companies because they are more likely and willing to settle claims out of court than larger corporations are. Simply put, many small businesses cannot afford the astronomical legal costs associated with a potential lawsuit, often reaching $100,000 or more. The U.S. Chamber of Commerce has concluded that business owners spend $128,800,000,000 per year on lawsuits and liability insurance, and over half of these costs are paid by the more than 4,000,000 small companies (with sales of $1,000,000 to $4,900,000 million). The most shocking statistic of all is that almost 45% of these costs are paid by the companies themselves rather than through insurance. There has been some activity generated in Congress to try to limit damages claimed against small businesses for other than financial damages, but nothing has been passed to date.

Because lawsuits are part of your public record, they become part of your credit history as well. A judgment against you will appear on your credit report every time you apply for credit, so it is in your best interest to do everything you can to avoid negative legal action of any kind.

How to Reduce Your Exposure to Lawsuits

Even though there is nothing you can do to ensure that you are never party to a lawsuit, there are many proven strategies that you can employ to make your company less of a target:

Be Aware of Safety - Claims filed by employees, customers, and other persons visiting your business can be greatly reduced by ensuring that your business environment is a safe place. The Occupational Safety and Health Administration (OSHA) can work with you to make sure all necessary safety enhancements are in place (www.osha.gov).
Minimize Employee Actions - Grievances filed by employees for inter-company conflicts such as sexual harassment, discrimination, workplace injuries, and wrongful termination have become a growing concern for many small businesses. In order to minimize these types of claims, it is crucial that you learn all you can about appropriate conduct in the workplace. An excellent resource for this information is the U.S. Department of Labor (www.dol.gov/dol/audience/aud-employers.htm).
Consult an Attorney - Even though the fees charged for a legal consultation seem high, the value of getting legal advice about a question you have is incomparable to the cost of a drawn out legal battle. One growing area of concern for potential litigation is claims related to intellectual property, so you should consult an attorney to ensure that you don't waste your time developing a product that may be someone else's intellectual property. Avoiding future lawsuits of this kind can save you a lot.
Reduce Your Exposure with an Insurance Agent - By working with an insurance expert you can get an honest assessment of your risks and take steps to reduce your exposure to liability by having sufficient insurance coverage.

Even if you do everything you can to avoid legal action, you may still find yourself facing a judgment or lien being filed against your company. In this case, it is best to settle the lien as fast as you can to reduce the time between filing and payment. These kinds of liens will stay on your public record and be part of your credit history for up to seven years, so the faster you settle them, the faster they will fall off your credit report.