3 Ways to Protect Yourself in Case Your Business is Sued

Guest post by Jennifer K. Halford, Esq.

A lawsuit can destroy your business. Even if you "win" the lawsuit, you still lose. Litigation is costly. Time is taken away from your business. And there are the emotional costs of a lawsuit.

That is if you "win" the lawsuit.

But what if you don't "win" in court? What if your business does not have enough capital to pay the judgment? Your personal assets can be taken to pay the judgment unless you have taken steps to protect yourself.

Take action now to protect yourself. Don't make these common mistakes:

1. Picking the wrong business structure: Sole proprietors and partners are personally liable for the business' debts. Shield yourself from personal liability by changing your business to a corporation or LLC.

2. Picking the wrong insurance policy: ­Too many business owners choose a cheaper insurance policy to save money. Or worse, they choose not to get insurance at all.

Most fail to realize their mistake until they get sued. That is when they realize their policy does not cover their loss.

Invest in a good insurance policy that is tailored to your business. Make sure it adequately covers the risks commonly associated with your industry. It will be worth the extra cost if you ever need to use it.

3. Picking the wrong business attorney: ­A good attorney will help your business succeed. A bad attorney will cost you time and money.

Find an attorney who knows your business. The attorney should be familiar with the industry's risks and liabilities. Talk with her about which business structure is best. She can also draft contracts and policies that limit your exposure to getting sued.

Ensure your personal assets are safe. Take action now to protect yourself before your business gets sued.

Jennifer K. Halford is an attorney whose practice focuses on business law and estate planning. She is also a professor at California State University, Chico, where she teaches Entrepreneurial Law.