No matter the size of a business, legal problems can shake its foundation and cause years of hard work to come crashing down. The last thing any entrepreneur wants is to dedicate their time and energy to building their enterprise only to face serious litigation issues that can drain their resources and ruin their reputation. That's why you must take the right actions early to protect yourself and your business from lawsuits. Keep reading to discover ways to protect against legal pitfalls in business.
1. Research and Register Intellectual Property
Intellectual property is crucial; that's why business owners must ensure that all their designs, ideas, and processes are protected. Before using a business name, research it properly to ensure it doesn't infringe on another business's trademark. You can start by searching for your proposed business name on the internet to see if other companies are using it. You can also research the trademark at the United States Patent and Trademark Office (USPTO) and the Secretary of State Office (SOS) in the state where you want your business to be situated.
There are various trademark classes to choose from. Many entrepreneurs opt for trademark class 35 because it includes a wide range of business and professional service categories such as advertising services, business management, and retail services. Nevertheless, it's best to do your research to know the trademark class that suits your enterprise.
2. Use Written Contracts and Seek Legal Advice
Small business owners usually make the mistake of trusting the word of people they're doing business with. This is risky because if things go south and litigation ensues, they won't have any tangible contract to present in court. So, whenever you're dealing with a business partner, service provider, client, or any other party, ensure all terms are clearly stated in a written agreement. That way, if any dispute arises, it will be resolved quickly based on the contract.
Consider getting legal advice before entering any agreement, especially if you have doubts. A lawyer can help you explain specific terms embedded in a contract that you may overlook or not understand. When hiring a lawyer, it's best to look for one who specializes in your industry. With the help of a competent lawyer who is fully licensed to operate, you can be assured your company is in capable hands.
3. Get Insurance
Consider getting a minimum coverage liability insurance for your company. Liability insurance helps protect your business financially against third-party claims relating to bodily or property damage. For instance, if a customer or an employee gets hurt on your business premises, liability insurance can cover the direct medical costs, financial benefits incurred, and legal expenses.
If you're a sole proprietor, your business is particularly vulnerable to high expenses from liability claims. As a result, you're in greatest need of liability insurance coverage. It's essential you discuss the legal phrases and clauses of an insurance policy with your lawyer before patronizing an insurance company.
4. Have an Efficient Record-Keeping System
Every business needs proper records, especially records that pertain to taxes. With adequate records, it'll be much easier to monitor your business's.finances and prepare your taxes correctly. Also, good records help you prepare accurate financial statements, including your income statements and balance sheets. With such records, it'll be much easier to deal with your financial institution or creditors and manage other aspects of your enterprise.
While doing business, you'll likely receive money or property from different sources. Your records will help you identify the source of receipts so that you can easily separate your business receipts from the non-business receipts. And you'll be able to separate your taxable income from the non-taxable income. So, if your business is audited by the IRS, you won't have any problems. If you find it challenging to keep up with tax documents, consider hiring an accountant.
5. Separate 'You' From Your Business
Separating your personal assets from your business helps you avoid losing your individual properties if your company gets sued. You can limit the possibility of your personal assets being the target of a lawsuit by having a trust. A trust is a legal contract that permits a third party (trustee) to hold and use assets on behalf of a beneficiary. This arrangement helps provide legal protection for you (the trustor).
Generally, there's no standard procedure for handling business litigations (if they arise) or analyzing the possible risks enterprises face when carrying out their operations. Some businesses are subject to heavy regulations while others are not. It helps to know your litigation risks early on to understand how best to prevent and handle litigation issues.
