5 Steps to Protecting Your Small Business From Lawsuits

by Aaron Scott Young

As the number of lawsuits continues to rise each year, it becomes even more risky for people to go into business for themselves. Fifty-seven percent (57%) of lawsuits impact companies making less than $1 million in revenue and 1 in 3 small business owners are sued or threatened with a law suit.

Here are some surprising trends pertaining to small business lawsuits:

  •  25%: Number of harassment claims has risen since 2006
  • $100 Billion: How much small businesses spend on legal action in the U.S. annually
  • $404 Million: Price to settle discrimination-related law suits each year
  • $104 Billion: Annual cost to settle tort liability

So how can you keep your small business away from such an uninvited circumstance? Here are a few pointers that may help you stay in control and out of the courtroom:

  1. Incorporating your business is a smart move. Not only will it protect your personal assets from the threat of litigation, incorporating will also save you money on taxes through deductions for business decisions.
  2. Keep accurate, up-to-date business records. Documentation is vital to your business. In court, being able to reference past documentation will help prove your case and protect your business.
  3. Hire professional assistance. When you run a business, you can expect that at some point you’ll need to seek the assistance of an attorney. If you’re worried about legal costs being too high, refrain from making unnecessary phone calls and require authorization on any service over $200 to keep your fees manageable. Also, it’s a good idea to hire a CPA or tax attorney to help you get a grasp on your taxes and stay abreast of changing tax laws.
  4. Properly handle all employee situations. Interview potential employees fairly and equally, prohibit discrimination and harassment, be careful to classify your employees correctly under the Fair Labor Standards Act (especially in the case of independent contractors), and maintain extensive payroll records for your protection.
  5. File all workers’ compensation claims immediately. Implement training procedures in an effort to stop accidents before they ever happen.

There is no guarantee that a lawsuit won’t find its way to your door. It’s up to you to keep yourself informed, organized, and in control by taking steps to help minimize your risks.

Would you like to know the level of risk your business is at for attracting a lawsuit?  Check out our recent webinar “Own nothing… Controll Everything”  to find out.


Incorporate Your Business – take the first step in separating your personal from business assets today!

Corporate Health Checklist – Already incorporate or have an LLC?  Find out how will it stand up to scrutiny?