Small Business Brief

Attorneys & Legal

6 Important Practical Steps to Take When Facing a Business Lawsuit

If you’re a business owner facing down a lawsuit, the steps you take can make or break your case. To ensure you’re following proper procedure, click here to learn what to do in the event of a business lawsuit.

If you are in business long enough, there’s a good chance you will eventually face a business lawsuit.

The experience can be ruinous. However, if you are smart, you can aptly navigate the treacherous waters, and sail on to a bright future.

Stay calm, and read on. We’ve put together six practical tips that will help you survive being sued.

Retain a Competent Attorney

If it went without saying, we wouldn’t have to say it here. Get a lawyer. If you don’t already have a lawyer, there is no time like the present.

If you already have a lawyer, it may be time to get another lawyer. This lawyer can help you specifically with the lawsuit you are facing. You can hire someone with direct experience in the subject matter.

You’ll have many questions about what happens when someone sues you. An experienced litigator will be about to answer those questions directly.

Don’t Admit Anything

Once you are actually being sued, it doesn’t matter what you personally think about the case anymore. Your attorney is the person whose job it is to convey information to the other party. It’s not your job.

Don’t admit wrongdoing. It’s definitely not your responsibility to make it worse by making threats or hostile actions towards the plaintiff. Just stop contact. If you have something to say, you’ll have plenty of time to say it later.

If you think, “yeah, I’m at fault. I should pay this person.” Tell that to your attorney and let them make that offer. If you say it, you might be liable for what you admit to, plus an extra amount added on!

Don’t trap yourself in a negative position because you couldn’t keep your mouth closed.

Contact Your Accountant

It might not seem obvious at first, but your accountant can give you valuable advice, starting as soon as you are served.

Lawsuits against companies are complicated activities with serious accounting repercussions. Let your accountant know right away, and directly ask for advice.

You may be able to limit your exposure to damages. This can involve moving assets from one legal entity to another, or by changing your insurance profile. In any case, you’ll need the advice of a competent professional to navigate the legal requirements of a business lawsuit.

Contact Your Insurer

Another person you need to reach out to is your business insurance provider. Be frank and upfront about the nature of the claim of the lawsuit. You don’t need to share information about your perceived liability with the insurer.

You don’t know what your liability is, that’s what the lawsuit is all about. So don’t offer that kind of speculation to your insurance provider. Let them know as soon as possible about the nature of the lawsuit.

They may be able to provide you with a settlement option. Your insurer might be willing to take on the responsibility for defending against the lawsuit, depending on the nature of their liability in the claim.

Get Organized

Even before the decision is made about if and how to fight the lawsuit, it is a good idea to get super organized around anything related to the claim. You should also get all of your general business matter in order.

Get copies of all the general documentation, your incorporation papers, bank accounts, even passwords and backup materials. Then organize everything related specifically to the case you are dealing with. Customer receipts, employee logs for the time in question.

Even if it is only tangentially related to the event, if you can connect it in any way with the lawsuit, put it in the file.

Understand Your Personal Liability

In order to stand up, you need to be on solid ground. A business lawsuit can through your entire world upside down. You need to understand your personal liability in the case.

Your personal liability may be very different from your business liability. Is your business incorporated? Is it a limited liability company [LLC]?

Your lawyer will inform you how to respond to a lawsuit, depending on the structure of your business.

Many entrepreneurs have failed in the past, and it may be time to walk away from this particular business venture. You need to be willing to consider this option.

The important thing is to consider your health and happiness. Your life could change radically as you deal with the repercussions from the suit.

Many people actually don’t know that you generally can’t be thrown in jail for a business liability. There is no “debtor’s prison” waiting for you. Unless it involves some kind of blatant crime like drunk driving, you aren’t going to be locked up.

If you have any questions about the criminal nature of your case, ask your attorney directly to explain it to you.

The next biggest misconception that people have when they are involved in a lawsuit, is what happens when you lose your case. Your opponent will be issued a judgment. A judgment is a piece of paper that says the court has ruled and that you owe money. It is a piece of paper, and might not be worth much more than that.

What effect a judgment has on you depends on the assets you have and the nature of the case. You may be able to declare bankruptcy and discharge the judgment 100%. If the judgment is against a business entity, you might be able to create another business entity in the same industry, and simply start up tomorrow fresh in another profitable business.

The point is that you shouldn’t panic just because someone has won a judgment against you. It might be time to hire an appellate lawyer to appeal the case.

A Business Lawsuit is No Fun

It really stinks being sued. If you’re involved in a business lawsuit, get the legal help you need so that you can get back to doing what you do best: running your business!

For more helpful articles geared toward entrepreneurs and small business owners, check out our blog!