With your own business can come freedom, a better sense of control, financial opportunity, and a space for innovation. Unfortunately, running your own business can also open you up to lawsuits. What measures can a business take to avoid litigation? We’ll review some of them below.
Among the many tips for how a business can avoid litigation, one of the best is to hire an experienced and strategic business attorney. At The Hunnicutt Law Group, our business attorneys have experience representing large and small businesses. We enlist a variety of dispute resolution strategies to help entrepreneurs sort out existing and potential legal disputes with as little difficulty and financial stress as possible.
Tips to Avoid Business Litigation
Whether you are just starting out in the business world or you are a seasoned business owner, taking the following steps can drastically reduce the likelihood of business lawsuits. Let’s take a look at what you can do to protect your professional and commercial interests.
File Business Formation Documents with the Government
There are many legal structures you can choose for your business, and several of them come with default legal rules for resolving disputes between co-owners. Not only can forming a limited liability company (LLC), corporation, or limited partnership give you and your fellow owners an outline for solving problems, but it can also limit your business controversies from affecting your personal life. Without taking steps to create an LLC, corporation, or limited partnership, any business you form is a sole proprietorship or general partnership and leaves you vulnerable to a larger number of lawsuits (and the ensuing financial liability).
You file your business formation documents with the Texas Secretary of State. To make sure you choose the business structure that suits your needs the best, and the documents are created correctly, speak to one of our skilled business attorneys.
Write Detailed Governing Documents for Your Business
When you start an LLC, limited partnership, or corporation, you should also take the opportunity to hire a lawyer and write detailed governing documents for your business. The governing documents you can execute for your entity include the following:
- Bylaws – for corporations,
- Partnership agreements – for limited partnerships, and
- Operating agreements – for LLCs
These documents can lay out what rights and obligations owners and managers have, how to divide profits and losses, how to resolve disputes, and how to address any other business matters you identify. What these documents say is generally binding.
A detailed governing document can leave less room for disagreements between ownership or management. You can also use a governing document to require arbitration of certain legal controversies, which may reduce the cost and stress of resolving a dispute and maintain confidentiality.
Execute Business Contracts
Your business formation and governing documents bind only managers, owners, and individuals with interests in your business. If you want to know how a business can avoid litigation from third parties such as clients and vendors, entering comprehensive contracts with third parties can help. A detailed contract leaves less question about whether your business has committed an actionable violation. Like your governing documents, your third-party contracts can also include a requirement to arbitrate legal claims.
Do Not Commingle Assets
A common mistake for first time business owners is failing to keep your personal and commercial assets separate. Forming a corporation, limited partnership, or LLC cannot protect you the way it should if you engage in behavior such as:
- Placing personal revenue in business bank accounts;
- Purchasing personal property (e.g., homes, cars, etc.) in the business’s name or with business funds; or
- Using personal property to achieve business objectives.
When you take the actions listed above, your business can be sued for your personal debts and legal issues (and vice versa).
Allowing personal lawsuits against businesses and business lawsuits against individuals is called “piercing the corporate veil.” When the court system allows an individual to pierce the corporate veil, the court agrees that a business owner used their business as an alter ego for their personal activities. By keeping your business and personal assets separate, you reduce the likelihood that someone can sue your business for your personal issues.
Hire a Business Attorney
Hiring an experienced business attorney is one of the best commercial investments you can make to protect your enterprise against litigation. Your attorney can help you form a venture that limits your personal liability, negotiate and execute governing documents and contracts that reduce the likelihood of legal actions, and procure appropriate insurance for your business needs. If a legal controversy arises, your attorney can also help you negotiate a favorable settlement and protect you in court.
Speak to Our Attorneys at The Hunnicutt Law Group
If you would like to schedule a consultation, you can call us at 214-361-6740 or contact us online.