Legal Advice

10 Steps to Avoid Litigation in Your Business


The last thing anyone expects when they start up a business is that one day they will have to deal with litigation. But commercial lawyers will all tell you that such a problem is more likely than you may think and should be prepared for well in advance. Taking out insurance to pay for it will at least help to save the business if it does happen. However, no amount of money will prevent the stress and trauma, or restore the reputation of the company.

So how can you prevent it from happening in the first place? Here are 10 steps to take that will help you avoid your business being sued.

  • You can limit your liability contractually, something that many businesses do not take advantage of due to the solicitor’s costs. But it can be even better than having insurance when you negotiate your liability in doing business. It is possible to have defensive trading agreements in place with both suppliers and customers.
  • Insurance – don’t just take out an insurance policy. Review the terms with your insurance broker and make sure you are insured for every possibility. You can never have too much insurance when in business.
  • Limit your liability with the structure of your business. A Dual Business Structure will legally separate the assets of your business from the operational activities. Hence, if you are sued the assets of your business cannot be touched.
  • Know your legal environment. Make it your business to read up on the key issues for the industry you are involved in, be that trade practices, intellectual law, franchises or consumer protection. If you don’t know about such things you can’t prepare for them.
  • Have a good filing system and file everything. This is potential evidence for fighting a claim or for bringing one.
  • Be honest and deal with integrity to reduce the likelihood of claims being made against you.
  • Address any issues quickly and don’t let them escalate to arbitration. Negotiation and mediation should always be tried first and the quicker you get onto it, the easier it will be to solve.
  • Establish a relationship with a commercial law firm so you don’t waste time in finding someone to help you when you need it.
  • Train your staff in the relevant risk issues and encourage them to be transparent, honest and comfortable enough to share any problems they see with you. That way you will know what’s going on in your business.
  • Conduct risk reviews on a regular basis, either monthly or quarterly. The board of directors, accountants, financial advisors and lawyers for the company should all be present. This can be done at your regular board meetings to save calling an additional meeting.