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A new business owner should prepare for a possible lawsuit

Perhaps you have finally realized your dream of opening your own business. The possibility of defending yourself against a lawsuit is probably the last thing on your mind.

However, it is best to take precautions. Here are three areas that deserve your attention in preparing for the possibility of a lawsuit.

Helpful insurance options

Having good insurance can be extremely valuable in terms of protecting your business and financial status. Examples are Employment Practices Liability Insurance, Workers’ Compensation, Directors and Officers Insurance and Environmental Insurance. Many such policies provide reimbursement for the business owner for defense costs and the expense of resolving a lawsuit.

Your personal liability

You must understand where you stand in terms of personal liability because certain situations could put your personal income and savings in jeopardy. You must keep your business separate from any personal ownership questions. If litigation develops, the court will want to know whether you keep separate bank accounts, proper payroll records, inventory records and more. If there is no appropriate legal separation, the party bringing a lawsuit against you may have the right to hold you personally liable.

The legal aspect

If you have not already done so, you should establish a relationship with an attorney who can assist you if a business dispute should arise. If a lawsuit against you or your company develops, your initial course of action would be to contact your attorney and provide the details. Next, you should implement a “litigation hold” to secure any business documents in both paper and electronic format that would apply to the claim of your opponent and the defense you intend to mount. The court can and will impose penalties if it finds that any documents pertinent to the case were deleted or discarded.

Planning ahead

While living your dream of business ownership, it is to your advantage to prepare for the possibility of a lawsuit. Perhaps it will never happen, but remember that litigation can cause much more financial damage to a small business than to a large, powerful and well-heeled company.

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
  • ABA | American bar Association | Defending Liberty Pursuing Justice
  • Oregon State bar
  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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