No business owner plans to be on the receiving end of a lawsuit and scrambling to protect your business after a lawsuit is filed is often too late. Here are three tips to protect your business from legal trouble.
First, whether you run a fruit stand on the weekends on a large manufacturing company, make sure that you form a formal business entity, like an LLC or a corporation. Creating one of these entities serves a crucial role: protecting your personal finances and property from creditors and lawsuits.
Without an LLC or similar entity, a disgruntled employee who sues your company will likely be able to take your home, your personal car, or the money in your retirement funds or savings accounts to satisfy any judgement. The simple act of properly creating a business entity shields your personal assets from these types of collection efforts. Second, a business deal formed through just a handshake is fine – that is, until there’s a future disagreement over the deal. It’s incredibly important to put all of your agreements in writing. And before you, “I don’t want or need all that legal mumbo jumbo,” let me agree with you. There’s a huge issue in our society with “over-lawyering” transactions, but, putting just a few important terms down on a piece of paper can save you from a lawsuit.
For every business transaction, make sure to have in writing at least the following:
- The parties’ names
- The services or products being purchased
- The price and payment terms
- The date or duration of contract
Documenting these simple items can ensure there aren’t any future misunderstandings, and with any complex contract, you should seek experienced legal counsel.
Third, what do seasonal workers, independent contractors, and full-time employees have in common? They all need to sign an employment agreement that protects your business from potential lawsuits, and it gives both you and your workers written outline of your expectations.
In addition to outlining number of hours worked, pay, benefits, and other terms, a well -crafted agreement that can be used to prevent unfair competition. A reasonable non-compete clause can keep your employees from opening a competing business by stealing your clients or contacts, and a confidentiality clause can prevent employees from spilling the beans about your proprietary business practices.