How to Protect Yourself in Today’s Litigious World

Today, business seems to get more complicated every day. And the number of legal actions, disputes and lawsuits continues to increase. At the same time, commerce is alive and well and there are a number of sound ways to protect yourself and your business.

Set Objectives. It is important to define your business and set goals and objectives. Decide what you will and will not do. Certainly you should set goals and objectives when you establish your business, but also repeat this process at least once a year. Then, compare your day-to-day activities against your goals and objectives. Eliminate activities that are outside your scope and could create a challenge.

Incorporate Your Enterprise. By creating a limited liability company (LLC), S-Corporation (S-Corp) or C-Corp (C-Corporation), you can create a business entity that is separate and distinct from yourself as an individual. This single step alone can shield you from liabilities incurred by the business. The concept is that a customer or client will sue your business and hopefully be blocked from suing you as an individual or if they do sue you as an individual, you are released from liability and your corporate or business entity faces liability.

Obtain Professional Advice. Most businesspeople and especially entrepreneurs are typically on a tight budget; in other words, they face a cash crunch. Understandable, but make sure you get top professional advice. Professional advisors could include lawyers, accountants, consultants, bankers and financial advisors. By investing money today, namely paying the advisors’ fees, and obtaining sound advice, you could avoid hassle and save $1000s and perhaps $10,000s later on. When you receive sound advice, implement it.

Find Out the Rules Relating to Your Field and Stay Current. Every field has its own rules and requirements. Some fields are more complicated and involved. By mastering the rules and structuring your business and day-to-day activities to comply with the rules, you increase the likelihood you will be protected. Be sure to follow the rules.

Obtain the Required Licenses & Permits. Today, more and more fields require its operators and often employees to maintain licenses and permits. For example, a license could give you the right to cut hair, practice accounting or law, or perform maintenance and improvements to people’s homes. Be sure to renew your licenses and permits before they expire. Absent the required licenses and permits and you or your employees become involved in a malpractice or negligence suit, you may be more likely to be found guilty. And, what’s more you’re insurance coverage may be denied if the licenses were a requirement of the insurer. Find out your field’s ‘Continuing Education’ requirements and practices, and keep current.

Join a Trade Association. Most industries have one or more trade associations. Join and become an active member. Many associations publish valuable information, books, special reports and audio programs that can help you keep your knowledge current. Study these materials carefully and implement the relevant strategies in your business. If practical, attend the association’s annual convention and participate in the workshops that cover legal trends and pitfalls in your industry.

Obtain Insurance. Liability insurance coverage can protect you and your business. Meet with an insurance agent or broker who is active in your field. Depending on your field, your homeowner’s or automobile insurance carrier may not have the specific knowledge, expertise and experience required to protect you and your business.

For example, if you operate your business out of your home (home-based business), for example in a home office, and you use your personal computer for your business, your ‘regular’ homeowner’s insurance may not cover your computer or office equipment in the event of a casualty (fire, theft, etc.). Meet with your business insurance agent on a regular basis to ensure you have adequate insurance coverage in light of trends in your field and the state and direction of your business.

Create a Set of Client Agreements and Contracts and Use Them Every Time. A well-written contract or agreement to be signed by you and the client can help protect you from liability. Have your lawyer draft your contract and review every contract you are considering signing. The agreement should spell out who does what, who is responsible for what, time deadlines, indemnification, and what happens in the event a dispute arises.

Make Sure Substance Follows Form. Many business owners establish their business entity (for example, incorporate an LLC or S-Corp) and also create business forms. But, over time the business changes course or employees resign and new employees join who are not familiar with company policy; and the forms may no longer be used.

Perhaps a form requires a client’s or customer’s signature before certain actions take place. And on occasion, the employees rush to close a deal and don’t obtain the client’s signature. Then in the case of a dispute or problem, the client will not be bound by ‘form’ because the client never signed the agreement.

In addition, once you establish a business entity, for example incorporate, be sure to conduct ALL business activities through your business entity and not as an individual. Maintain a separate business checking account (or demand deposit account or DDA) solely for your business. If you undertake business activities both as a business or corporate entity and as an individual, you risk blurring the lines between yourself and your business. This can lead to challenges.

Keep Excellent Detailed Records. Keep notebooks and correspondence relating to key client and business activities. Create an organized filing system and make copies of all relevant and important documentation, for example, letters, checks, forms, notices, etc. Detailed records can help you answer any questions and challenges in the future. Keep photocopies of important records offsite in a warehouse or data storage center so your key records are protected.

Create a Policy & Procedures Manual. Depending on the complexity and nature of your business, you may want to create and maintain an up-to-date policy and procedures manual. The manual should clearly set forth the steps involved in every key aspect of your business. And it’s very important that your actual business activities match the activities and processes included in the policy and procedures manual. And, you should conduct a process review or audit at least once a year to determine whether your activities and actions match the policy and procedures manual. If not, update your manual or change your actions. This is important because if you become involved in a malpractice or negligence action and furnish the policy & procedures manual as evidence, if you failed to follow your own procedures, this may negatively impact your situation.

Educate Your Employees on a Regular Basis. The best way to ensure that your employees are acting as you want and in accordance with your policies and procedures is to hold workshops and seminars to educate and inform them about how to conduct business for you. In addition, by keeping records of workshops held and the participants, you can demonstrate the steps you take to educate your employees and maintain certain standards.

Declare All Sales Revenue on Your Tax Returns. In cash businesses, often there is a tendency not to declare all of the cash receipts on the business tax return. There have been a number of cases where businesses have been audited by the IRS and were found guilty of tax evasion or tax fraud. Interestingly enough, in many cases the IRS audited the client who claimed a deduction for a cash expenditure. This led the IRS to contact the business (service provider or vendor) and revealed the underreporting of income. By reporting all sales revenue in your books and records and on your business and personal tax returns, you can significantly reduce the risk of liability.

In today’s increasingly complex world, litigation risks are varied and numerous. And by taking these precautions, you can significantly reduce your risk of liability.

Matt Cunningham is the President of LLC Publishing Corp., the leading provider of Incorporation and Filing services in the US. LLC Publishing can help protect you and your assets by incorporating your business. We make the process easy and hassle free. Contact us for a free consultation at 1-866-638-3309 or email us at and visit our online resource center

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One Response to How to Protect Yourself in Today’s Litigious World

  1. Josh says:

    Great article. Thanks.

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