April 30, 2021

Planning for Litigation: How Small Businesses Can Minimize Costs

David Bobo Mullens, III

Let’s face it: no one welcomes the idea of unexpected litigation, especially business owners. Lawsuits can cause stress and heartache, impact productivity, alter new business opportunities, and precipitate substantial and unexpected costs.  

But what if I told you there were ways small business owners could plan for legal action in a way that would minimize the risk of incurring those costs? There are a number of action items all small businesses may consider so as to be best prepared when litigation arises.  

These include:

Define your business’s legal structure. How is your business structured? Is it a corporation, meaning it is authorized to act as a single entity and recognized as such by the law? Or is it a partnership, a business operation between two or more people who share management and profits? The differences matter, as they affect your business’s legal obligations and therefore, the opportunities and drawbacks available to your business. For example, in a general partnership the partners assume responsibility for the partnership’s debts and other obligations. In a limited partnership, the general partners own and operate the business and assume liability while the limited partners serve only as investors. If you don’t know which one your small business is, or why it is structured the way it is, find out. 

Draft policies and procedures. Whether you have one employee or two hundred employees, it is wise to have clear policies and procedures in place. Without them, issues of critical importance to your company such as health and safety, legal liabilities, regulatory requirements, and others are left undefined–and this can have serious consequences when something goes wrong, whether it be an injury on the job or a non-fulfilled purchase order. 

Trust but verify! Miguel de Cervantes, the author of Don Quixote and creator of the character of the same name, is credited with saying, “An honest man’s word is as good as his bond.” While that may be true, proving the exact meaning of words said by someone (honest or otherwise) that weren’t written down is difficult, and leaves room for ambiguity that can lead to disputes down the road. Business owners should always try to get agreements and contracts in writing for every deal they make–even if it’s with people they trust! 

Protect your intellectual property. Last April, the Commission on the Theft of American Intellectual Property estimated annual costs from the loss of intellectual property ranges from $225 billion to $600 billion. As a business owner, consider obtaining confidentiality agreements with all employees as well as trademark registration for any applicable logos, names, and slogans unique to your business.

Call your lawyer. It is always a good idea to have legal counsel review your business and its processes, both for your specific concerns, as well as for a general analysis. While there will be some upfront costs to doing so, catching mistakes early can alleviate significant financial and mental strains later.

In short, small business owners will be well served if they are organized and prepared, manage conflicts before they become full-blown disputes, and get help early. Spend some money now to save even more later.

David Bobo Mullens, III, is an associate in Oliver Maner’s litigation department and specializes in business litigation, local government matters, and maritime and transportation law. He can be reached at dbmullens@olivermaner.com or 912.236.3311

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