It goes without saying that a lawsuit against your company is never fun. And if you are a small business owner contemplating being sued by a client, a supplier, or a competitor, it is important to seek professional legal advice to understand all of your options regarding business lawsuit insurance.
As with most things, when it comes to protecting your small business from a lawsuit, the best defence can be a good offence. Here are five steps that you can take to protect your small business from a lawsuit.
1. Choose the right company structure for your business
The most commonly used business structures in Australia are:
- Sole trader: Legally responsible for all aspects of the business, including any debts and losses and day-to-day business decisions.
- Partnership: Two or more people who distribute income or losses between themselves.
- Company: A legal entity that is separate from you as an individual.
- Trust: A structure where a trustee carries out the business on behalf of the trust’s members (or beneficiaries).
A common mistake made by some new small business owners can be that they don’t seek professional advice regarding how they should structure their company. While the sole trader structure may seem most apt on paper, the reality is that other business structures, such as the company structure, can help reduce the chances of a lawsuit impacting your personal assets.
When deciding how to structure your business, you may benefit from seeking the advice of both an accountant and a lawyer. Otherwise you may end up with the default sole trader business structure, which may not be the best fit for your new business.
2. Obey the law
While 100 per cent obvious, it’s still worth mentioning that the best way to protect your small business from a lawsuit is to obey the law. Simple, right?
However, obeying the law is worthy of a mention in this list simply because some small business owners may not know the full extent of their legal obligations. For example, if your business employs individuals, it’s in your interest to learn the basic ins and outs of employment law and what the law requires of you as a small business owner.
But you needn’t do it on your own; instead, consult a lawyer who is experienced in employment law to help you meet the required criteria.
3. Business insurance
Do you currently hold insurance for your small business? And if you do, is it the right type of insurance? Business insurance can be tricky to navigate for those not familiar with the ins and outs of it.
While business insurance providers go to great lengths to explain business insurance and to simplify purchasing small business insurance, some business owners may still find business insurance a challenge to navigate.
Business insurance, commonly referred to as a ‘Business Insurance Pack’ can provide cover for a range of business-critical things assets and events, including:
- your business’ premises and contents;
- loss, damage, or theft; and
- financial loss experienced from an insured interruption to your business.
It’s worth noting that business insurance may be a mandatory requirement for some businesses. For example:
- you may be required to hold Public Liability insurance if you work on a construction site.
- Professional Indemnity insurance may be required if you work on contracts.
- If you rent your business premises, your landlord may require that you be covered by your own Public Liability insurance, and in some instances Glass cover as well.
4. Document everything
Keeping accurate records is a key part of being a small business owner, and that includes clearly documenting all of your legal agreements with partners, customers, and employees.
Recording everything in writing can help reduce the chances of litigation being bought against your business, especially in regard to employment agreements. You may also consider introducing an induction handbook for new employees to cover off all critical details that new employees need to be aware of.
5. Business debt
Business debt, and the inability to service business debt, is one of the most common reasons why small businesses can fail. Indeed, when business debt goes wrong it can pose serious problems for small business owners and could lead to the demise of your business.
To reduce the chances of this happening in your business, try to constantly be aware of the financial state of play in your business. A core part of this process is clearly understanding your business’s financial position and what will happen if the market takes a turn for the worse and you are no longer able to service your debts.
As a small business owner, safeguarding your business is critical to your long-term success as a business owner. Get your business insurance quotes sorted quickly and easily online or by calling us on us on 1300 920 864.
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