As a small business owner, avoiding the crippling dangers of litigation should be at the top of your list of priorities. Lawsuits are not only costly, but they can take you by surprise and take away your focus from one of your business’ most crucial tasks—your bottom line.
There are several simple measures that every small business owner can take to minimize the threat of a lawsuit, as well as increase your likelihood of success in the event of a lawsuit.
The first and easiest way to prevent a possible lawsuit is by simply setting up the proper business entity. Nevada has favorable corporate laws that allow a business owner to protect personal assets in the event an owner is sued, and also offer such other advantages as tax shelters, varied ownership, and stock options. However, keep in mind that once a business entity is formed, certain corporate formalities must be maintained or a business owner can be exposed to personal liability. One way to avoid this is to always treat the business like a “real” business. Keep corporate and personal finances separate, hold regular meetings, annually update corporate minutes, and file reports with the Nevada Secretary of State.
In Nevada, all employment is presumed “at will,” (unless the employee has an agreement to the contrary), which means that an employer does not need a good reason to terminate an employee. However, an employer may not terminate an employee for an improper reason: It is unlawful for an employer to terminate any individual because of his or her race, color, sex, religion, sexual orientation, age, disability, or national origin. Nor can an employer discharge an employee for reporting discrimination or harassment in the workplace, which may be viewed as retaliation, and can subject the business owner to liability.
To avoid potential liability, it is vital that a business adopt a written anti-discrimination and anti-sexual harassment policy, and ensure that all employees and managers follow it. Also, carefully investigate and document every employee complaint of discrimination, and when in doubt, immediately involve legal counsel. If an internal investigation is conducted under the supervision of an attorney, it may be possible to shield from disclosure damaging materials that may arise in the course of your investigation.
Also, minimize lawsuits by disgruntled employees by documenting annual reviews and all pivotal work-related conversations with employees. Finally, keep in mind that it is a good practice not to discuss with third parties the fact of, or the reasons for, an employee’s termination, which could expose the employer to a defamation claim.
Disputes between partners of a business are so common that it has garnered the nickname of a “corporate divorce.” Unfortunately, the “divorce” is rarely amicable. It is worth consulting an attorney prior to entering a formal business relationship to potentially avoid or minimize possible litigation by a former partner.
Moreover, businesses owners need to be careful when raising money to avoid potential future legal problems with investors. To minimize such problems, obtain legal counsel whenever your business raises funds (including from friends and relatives). An attorney can also ensure compliance with all securities laws and other regulations.
Finally, business owners must exercise caution when working with third-parties, such as vendors. Most commonly, owners sign contracts with vendors that may cost them a lot of money or cause them to waive certain rights in the event of a lawsuit. Always consult a lawyer before signing a contract, including rental contracts and loan agreements.
Lastly, a business owner can reduce the risk of a lawsuit due to personal injury by ensuring that walkways, common areas, and stairways are kept well-lighted, clean, and safe. Regularly check that any tripping hazards, such as loose stairs, torn carpet, and wet floors, are immediately eliminated from public areas. Also consider installing surveillance cameras. That way, if an accident is caught on camera, an owner can thwart a potential plaintiff inclined to fabricate or exaggerate details of the incident.
Founded in 1996 by Mark A. Hutchison and John T. Steffen, Hutchison & Steffen is a proven, AV-rated, law firm built to serve business owners. Now one of Nevada’s largest law firms, it has built its reputation on outstanding results for its clients. Jury verdicts and results obtained by the firm have been reported in The New York Times, The Wall Street Journal, Los Angeles Times, and other publications. The firm employs top legal talent combined with hard work to ensure that clients’ legal needs and expectations are met.
Hutchison & Steffen, www.hutchlegal.com