10 Tips to Prevent Business Litigation

September 24, 2015

An ounce of prevention, as they say, is really just sound business practice.

Litigation can be ruinously expensive and may force a business into liquidation. Even a “win” can devour the time and energy you need to actually run your business. Law suits also have a nasty way of damaging the most important intangible asset, your business reputation.

There is no reason to step away from an unavoidable fight, but the advice all business attorneys give clients is to avoid finding themselves there. Following are 10 remarkably simple steps you can take to protect your business from the risks of becoming needlessly embroiled in litigation.

1. Structure your business to protect important assets. Most businesspeople understand that the peril of doing business as a sole proprietor is that personal assets can be reached by business creditors. There are few, if any, situations in which that is a reasonable risk.

An informal partnership, in which rights and responsibilities are not described in a formal partnership agreement, can be just as bad.  Partners can find themselves liable for the misdeeds of other partners even if they were unaware of their actions.

An LLC or Subchapter S corporation may be a better choice depending on the risk characteristics of the business and desired tax treatment, but it should be a considered rather than an automatic choice.

It  may be important to go even a step farther, perhaps structuring the business into several entities in order to shield important assets, such as intellectual property or real estate from the greatest sources of risk, whatever they may be.

One of the most important parts of a business plan is an exit strategy. Make sure that the form in which you choose to do business will allow you and your co-venturers to leave on terms that are clearly understood at the outset.

2. Business relationships should be covered by written contracts, which should be reviewed by an attorney. That is the place to spend your legal budget, rather than on litigation.

Without laboring the obvious, make sure that you read and understand all contracts to which you are a party. Ask for clarification of points about which you are unsure or which may require further negotiation.

Remember that employment contracts may be appropriate for key employees. Consider whether nondisclosure or non-competition agreements would be justified.

In some circumstances, it may be worth requiring that disputes that arise under certain contracts be resolved through alternative dispute resolution rather than litigation. Liquidated damages clauses may also help to prevent litigation.

Contracts are especially important in international transactions where, practically speaking, you may not be able to bring the other party into American courts. This is when escrows, indemnity clauses, liquidated damage agreements and insurance can be essential.

3. Apropos of which, make sure that your insurance coverage is appropriate to your business risks. It is not just a question of amount, but of the kind of coverage that your business carries.

General liability and commercial property insurance are probably not enough. Product liability and professional liability insurance are also must-haves. Depending on the nature of your business you may also need data breach insurance. Your lenders may have specific insurance requirements of their own, and state law will also require specific types of insurance, such as workers compensation.

4. Keep good records. Many disputes can be avoided by being able to quickly produce the relevant documents. These should include contractual agreements as well as correspondence and notes taken contemporaneously to record the substance of conversations and telephone calls. This may be a good time to review your records retention policy and to ensure that important documents exist in both electronic form and hard copy.

5, Train and manage staff. Do annual or more frequent reviews and be prepared to terminate the employment of any individual whose conduct could subject the business to a law suit. Employers may be vicariously liable for the misconduct of employees, including sexual harassment, if they are aware of the problem and do nothing to stop it.

A good policy and procedures manual that includes guidance on your business’s social media policy can go a long way toward preventing litigation, but it does also need to be reviewed with employees periodically.

Make sure that you have systems and procedures in place to help you identify dishonest conduct.

6. Be proactive in managing disputes before they escalate into litigation. Prompt and effective communication can do a lot to diffuse a situation with an unhappy customer or business partner. If the shoe is on the other foot and the dispute is about a nonpaying buyer or client, negotiating a payment schedule is often far cheaper and more effective than a lawsuit.

It is important to trademark your business name and anything else that is essential to its identity, but it is equally important to be pro-active in policing your intellectual property. Putting an end to infringing use promptly is more effective than suing over it after it has already done harm to the good will you have built. This is a situation in which you may actually have to be more than ordinarily willing to litigate.

7. Choose who you do business with. Especially for new businesses, the temptation can be to take any client or embrace any potential partner who walks through the door. Taking the time to know a little more about those you depend on, whether it is a big client, an important vendor, partner or key employee is usually worthwhile. Counterintuitive as it may seem, sometimes it is necessary to fire client or a brilliant, but obnoxious employee. Disentangling an unwise business relationship can be very troublesome.

8. Analyze past business disputes. A periodic retrospective review of disputes – who they involved on both sides and what kind of transactions gave rise to them – may help your business identify areas for improvement. For example, you may be able to identify problems with the terms of standard contracts, poor internal communication or a failure to properly handle complaints.

An annual audit of disputes, particularly over financial issues including credit card chargebacks or overdrafts can also help you spot problems like fraud or internal theft.

9. Nothing personal; it’s just business. It can be difficult for someone who has nurtured a business from the start to separate the personal from the commercial. If you find yourself arguing about principle, back down, turn around and hand the matter off to someone else who can be objective.

10. Don’t be a jerk. This is really a corollary of the previous two rules. Be honest in evaluating your own actions because no one has the luxury of being right all the time. Try to understand the dispute from the other side and made adjustments or amends as necessary. It can be cheaper in the long run just to let a customer win, even when he or she is clearly mistaken.

If you are dealing with a genuinely impossible individual, don’t be goaded into a fight. You can choose who you do business with and in some cases, the better choice may be to politely decline additional orders or jobs.

Litigation may, in some circumstances, be a necessary evil, but where your business has the opportunity to avoid recourse to the courts, it should. Remember that the primary beneficiaries of litigation are usually the lawyers.

Your business can avoid a great deal of unnecessary litigation by adopting 10 relatively simple good business practices that will also improve day-to-day management.

Anne Wallace, Esq.

By

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

Get Business Legal Updates

Please provide your full name.
Please provide a valid email address.
We respect your privacy, and we will never share your information. Unsubscribe at any time.

Related Publications

Apps and the legal implications of running them are a frequent topic in the Pasha Law blog and Legally Sound | Smart Business podcast. Such an episode from last year, on the legal woes facing popular app, GrubHub, over false charges and microsites. Click here to listen: https://www.pashalaw.com/the-dark-side-of-grubhubs-and-others-relationship-with-restaurants/

December 11, 2020

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

August 7, 2019
Legally Sound Smart Business cover art

Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
Apple Podcast badge
Google Podcast badge
Spotify Podcast badge

Latest Episodes

July 14, 2021

Through a five-round championship bout, Matt travels to Texas from California to determine which state is better for business. Will it be a knockout with a clear winner or will it go to the scorecards?

June 16, 2021

Covered in this episode of Legally Sound Smart Business are some typical business mistakes blunders small businesses often make and how to avoid them. Blunder #1: Copying and pasting agreements It may sound like a good idea at the time, but this blunder comes with hidden pitfalls. Having an attorney draft terms that are specific…

February 4, 2021

How you terminate an employee can make the difference between a graceful transition to avoidable negative outcomes like a dramatic exit or even a lawsuit. We gathered a panel of experts and asked them – is there a “right way” to fire an employee? We would like to thank our guests for this episode: Amr…

December 2, 2020

The COVID-19 pandemic has turned nearly every aspect of life on its head, and that certainly holds true for the business world. In this episode, Matt and Nasir explain how the early days of the pandemic felt like the Wild West and how the shifting legal playing field left a lot open to interpretation and…

November 16, 2020

After plenty of ups and downs, our buyer has finally closed on the purchase of their business. While we’re marking this down in the ‘wins’ column, it never hurts to review the game tape. In this final episode, our hosts, Matt Staub and Nasir Pasha, return to the deal almost a year later to reflect…

September 15, 2020

The ink is drying on the signature line and things are looking great for our buyer. After so much hard work, the finish line is in sight and the cheering within ear shot.   Though the landlord is still serving friction, things seem safe to move forward and for now, our buyer will be keeping…

July 31, 2020

Though things are coming along well, the journey would not be interesting if it was purely smooth sailing. After our buyer opens escrow, they are forced to push the closing date back when suddenly a letter from an attorney was received claiming the business, we are buying has a trade mark on the name!  Now…

June 12, 2020

With frustration at an all-time high and professionalism at an all-time low, our friend the Buyer has “had it” with the Seller and quite frankly their lack of knowledge. At present our Buyer is rightfully concerned that the latest misstep from our loose-lipped Seller will threaten not only the entire operation of the businesses but…

May 11, 2020

As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of…

April 4, 2020

One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment…

April 4, 2020

Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It’s a perfect outlook with a perfect setup for the ups and downs yet to come. Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the…

April 4, 2020

When a savvy buyer hears opportunity knocking to purchase a prime positioned business, she decides not to go it alone and taps in the professionals to help navigate what could potentially be a fruitful acquisition. “Behind the Buy” is a truly rare and exclusive peak into the actual process, dangers, pitfalls and achievements, that can…

August 7, 2019

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

May 28, 2019

In this podcast episode, Matt and Nasir breakdown the legal issues of the subscription industry’s business on the internet. Resources A good 50-state survey for data breach notifications as of July 2018. California Auto-Renewal Law (July 2018) Privacy Policies Law by State Why Users of Ashley Madison May Not Sue for Data Breach [e210] Ultimate…

March 12, 2019

In recording this episode’s topic on the business buying process, Matt’s metaphor, in comparing the process to getting married probably went too far, but they do resemble one another. Listen to the episode for legal advice on buying a business.

December 3, 2018

Nasir and Matt return to discuss the different options available to companies looking to raise funds through general solicitation and crowdfunding. They discuss the rules associated with the various offerings under SEC regulations and state laws, as well as more informal arrangements. The two also discuss the intriguing story about a couple who raised over…

July 24, 2018

Flight Sim Labs, a software add-on creator for flight simulators, stepped into a PR disaster and possibly some substantial legal issues when it allegedly included a Trojan horse of sorts as malware to combat pirating of its $100 Airbus A320 software. The hidden test.exe file triggered anti-virus software for good reason as it was actually…

April 17, 2018

Attorneys Matt Staub and Nasir Pasha examine Mark Zuckerberg’s congressional hearings about the state of Facebook. The two also discuss Cambridge Analytica and the series of events that led to the congressional hearings, the former and current versions of Facebook’s Terms of Service, and how businesses should be handling data privacy. Full Podcast Transcript NASIR:…

March 10, 2018

The Trump presidency has led to a major increase in ICE immigration enforcement. It’s critical for business owners to both comply with and know their rights when it comes to an ICE audit or raid. Nasir, Matt, and Pasha Law attorney Karen McConville discuss how businesses can prepare for potential ICE action and how to…

February 5, 2018

New years always bring new laws. Effective January 1, 2018, California has made general contractors jointly liable for the unpaid wages, fringe benefits, and other benefit payments of a subcontractor. Nasir and Matt discuss who the new law applies to and how this affects all tiers in the general contractor-subcontractor relationship. Click here to learn…

January 2, 2018

With a seemingly endless amount of new mattress options becoming available, it is unsurprising that the market has become increasingly aggressive. As companies invest in more innovative solutions to get in front of customers, review sites, blogs and YouTube videos have moved to the forefront of how customers are deciding on their mattresses and how…

December 7, 2017

In recent months explosive amounts of high profile allegations of sexual harassment, assault, and varying acts of inappropriate behavior have transcended every sector of our professional world. With a deluge from Hollywood and politics, and the private workforce, accusations have inundated our feeds and mass media. This harassment watershed has not only been felt within…

November 16, 2017

If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program…

October 10, 2017

Government requests come in multiple forms. They can come in as requests for client information or even in the form of investigating your company or your employees. Requests for Client Information General Rule to Follow Without understanding the nuances of criminal and constitutional law and having to cite Supreme Court cases, any government requests for…

August 24, 2017

Nasir and Matt suit up to talk about everything pertaining to employee dress codes. They discuss the Federal laws that govern many rules for employers, as well as state specific nuances in California and other states. The two also emphasize the difficulty in identifyingreligious expression in dress and appearance, how gender-related dress codes have evolved…

June 28, 2017

Nasir and Matt discuss the life cycle of a negative online review. They talk about how businesses should properly respond, how to determine if the review is defamatory, the options available to seek removal of the review, how to identify anonymous reviewers, whether businesses can require clients to agree not to write negative reviews, and…

June 7, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Mattbreak down social media marketing withguests Tyler Sickmeyer and Kyle Weberof Fidelitas Development. They first discuss contests and promotionsand talk about where social media promotions can go wrong,when businesses are actually running an illegal lottery, and the importance of a soundterms and conditions. Next, they…

April 3, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Matt go in depth with the subscription box business. They discuss where subscription box companies have gone wrong(4:30), the importance of a specifically tailored terms and conditions(6:30), how to structure return policies (11:45), product liability concerns (14:45),the offensive and defensive side of intellectual property (19:00),…

February 1, 2017

Nasir and Matt discuss the suit against Apple that resultedfrom a car crashed caused by the use of FaceTime while driving. They also discuss howforeseeable use of apps can increase liability for companies. Full Podcast Transcript NASIR: Hi and welcome to Legally Sound Smart Business! I’m Nasir Pasha. MATT: And I’m Matt Staub. Two attorneys…

January 5, 2017

The guys kick in the new year by first discussing Cinnabon’s portrayal of Carrie Fisher as Princess Leia soon after her death, as well as other gaffes involving Prince and David Bowie. They alsotalk about right of publicity claims companies could be held liable for based on using someone’s name or likeness for commercial gain.

December 22, 2016

Nasir and Matt discuss the recent incidentat a Victoria’s Secret store where the store manager kicked out all black women after one black woman was caught shoplifting. They then each present dueling steps businesses should take when employees are accused of harassment.

December 8, 2016

Nasir and Matt return to talk about the different types of clients that may have outstanding invoices and how businesses can convert unpaid bills to getting paid.

November 10, 2016

After a long break, Nasir and Matt are back to discuss a Milwaukee frozen custard stand that is now revising it’s English only policy for employees. The guys also discuss how similar policies could be grounds for discrimination and what employers can do to revise their policies.

October 6, 2016

The guys discuss the new California law that allows actors to request the removal of their date of birth and birthdays on their IMDB page and why they think the law won’t last. They also discuss how age discrimination claims arise for business owner.

September 29, 2016

Nasir and Matt discuss the racial discrimination claims surroundingAirbnb and how it’s handled the situation. They also discuss some practical tips for businesses experiencing similar issues.

September 8, 2016

Nasir and Matt discuss whyAmazon seller accounts are getting suspended and banned without notice and how business owners can rectify this situation through a Corrective Action Plan.

August 25, 2016

Nasir and Matt talk about the accusations surroundingfashion giant Zararipping off the designs of independent artists like Tuesday Bassen and howsmaller companies can battle the industry giants.

August 18, 2016

Nasir and Matt discuss Brave Software’s ad replacing technology that has caught the eye of almost every national newspaper and has a potential copyright infringement claim looming. They also welcome digital marketing expert Matt Michaelree to speak on the specifics of what Brave is attempting to do and whether it has the answers moving forward.

July 28, 2016

Nasir and Matt discuss the sexual harassment lawsuit filed by Gretchen Carlson against Fox CEO Roger Ailes. They also talk aboutthe importance of sexual harassment training and properly handling such allegations in the office.

July 15, 2016

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

June 23, 2016

Nasir and Matt discuss the criminal charges facing FedExinvolving the alleged transportation of illegal drugs. They also talk about how business owners should address working with customers that may be breaking the law.

June 15, 2016

The guys return after a long break to discuss why Yahoo is auctioning off over 3,000 patents and how this decision will affect the longevity of the company.

May 25, 2016

Nasir and Matt discuss the increase in the salary thresholdfor exempt employees and how employerscan try to avoid paying overtime as a result.

May 18, 2016

Nasir and Matt discuss the Baltimore law that makes it very difficult to operate food trucks in the city. They also discuss all the legal restrictions tohaving a food truck.

May 11, 2016

Matt listens to Nasir recap the developing battle in his hometown of Vandalia, Ohio over whether a Dunkin Donuts can move into a location in close proximity to a local favorite donut shop. They then discusswhether the issue is more legal or personal.

May 9, 2016

The guys kick off the week by discussing a Nevada employee who is claiming she was fired for not supporting the Scientology beliefs of her employer.

April 27, 2016

The guys discuss the massive floods in Houston,how employers responded, and why one meteorologist became a local hero. They also discuss the steps businesses should take in preparing for storms outside the workplace.

April 20, 2016

The guys discuss the boycott of Amazon over the products of an unnamed presidential candidate. They also talkabout how a business should handle a boycott and whether it’s possible to exit one unscathed.

April 13, 2016

Click here to read HubSpot’s response on this topic. Nasir and Matt discuss the trend in startups to compensate programmers and other early employees with stock options and how the company culture at HubSpot isn’t what it seems.

April 6, 2016

Nasir and Matt discuss various lawsuits against social media platforms in which users are accused of artificially inflating their social currency.

We represent businesses.
That’s all we do.

Oh, and we love it.

We love our work. We love reviewing that lease for your new location. We thrive on closing that acquisition that nearly fell through. We’re fulfilled when we structure a business to grow, raise capital, and be legally protected.

We focus on developing close relationships with our clients by being like business partners. A partner who provides essential, personalized, proactive legal support.

We do all of this without utilizing the traditional billable hour model. You pay for the value we bring, not the time spent on calls, emails, and meetings.

Our team is made up of attorneys and staff that share these values and we are retained by clients who want the same.

Pasha Law PC operates in the states of California, Illinois, New York, and Texas.

Meet Our Team

Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

Learn More