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Business Owners: Here's How to Avoid Litigation

Nobody wants to be sued. And nobody wants to lose a truck load of money paying lawyers to defend or settle a legal action. All the business owners I know just want to run their business. So what can you do to help reduce the litigation risk?

Reality: Small Businesses Get Sued on Occasion

While every day can be challenging, being a small business owner can also be very rewarding. But everything you have worked for can begin to evaporate in the blink of an eye; the days mail just might contain a Registered Mail envelope from that soured business relation you never wanted to hear from again. Inside there is an official looking document that declares:

You are being sued. You are a Defendant. Failure to respond to this Civil Claim may result in a judgment being entered against you. Go to the end of this document to see what you can do and when you must do it.

Reality: Small Businesses Get Sued on Typical Grounds

Most lawsuits against small businesses involve just a few key areas. Usually they are disputes about:

  • invoices;

  • Contracts and other Agreements;

  • Shareholder's perspectives

  • Liabilities, debts and obligations; and

  • Intellectual Property/Exclusivity Agreements.

Those areas of legal risk can be , in almost every circumstance, eliminated, or significantly mitigated. How? By both working with your lawyer proactively ahead of time and by consulting your lawyer early on in any dispute.

Reality: Small Business Get Sued, But Yours Needn’t Be

Here are the three best things your lawyer can do to help you avoid being sued:

First (1) Incorporate and Organize your Business

The most important thing you can do is start right. Incorporating and organizing your company properly at the outset is the most important step you can take to avoid being sued (or at least protect your personal interests if your company is sued).

Incorporating (by popping by the local Registry office) without knowing what structures you will need and failing to complete Corporate Organization (issuing shares, creating ledgers, passing necessary Director and Shareholder Resolutions, etc) opens you up to many areas of legal liability. Heck – you won’t even have a legally ‘active’ corporation! It’s like finalizing the contract to buy a home and thinking ‘I’m done!’ but never completing all the necessary purchase and mortgage paperwork and closing. You don’t own the house until you close on it. And. You don’t have an active corporation until to you organize it.

In addition to helping you incorporate with structures fit to your business needs, your lawyer can prepare all the organizational documents, issue the Share Capital, and make sure your business is legally a live corporation capable of providing some protection and value whatever comes your way. For more information about our incorporation services check out our website here or call us.

Second (2) Consult About Key Agreements.

Have your lawyer draft, or review any Lease Agreements, Employment Contracts, Service Agreements, or any other key agreements you might chose to enter in the conduct of your business. Poorly worded terms in contracts and leases often lead to nasty and costly surprises later.

Third (3) Consider a Unanimous Shareholders Agreement (“USA”).

Disputes or breakups between business partners are a lot like the disputes and breakups of romantic partners. They can be messy. Many of these disputes can be avoided in the first place with a good USA, which governs the relationship between owners from start to finish – and gives well thought through exit options should the need arise. A contract like a USA would govern any dispute and the shareholders would use its tools, and not litigation, to settle them.

For more information on these three things a lawyer can do to help you avoid being sued (Incorporating and/or organizing your business, to consult on key agreements, or to discuss a USA) contact us at Richards + Company today.

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