In today’s Freedom Friday blog and email newsletter, I want to answer a question that doesn’t get asked often enough, especially if it is too late, and that’s how a small business can avoid business litigation. As a small business owner, there are several different kinds of lawsuits which you may become involved in but can be avoided. Many disputes can be avoided if a small business owner takes some simple steps at the beginning or throughout the course of the business. Here are three (3) types of common lawsuits that small business owners and how you can avoid them:
1. Breach of Contract
The first type of lawsuit that is frequently faced by small businesses, but can be avoided, is breach of contract. This type of lawsuit can arise because your small business is not paying vendors or other contracts, or because your customers, vendors, or other parties are not paying your small business. Breach of contract is when one side or the other fails to hold up their end of the agreement, but these lawsuits can also be based on unpaid open invoices (also called open accounts), and unjust enrichment. First of all, contract disputes of all kinds can be avoided if the contract is in writing. Oral agreements settled by a handshake can very easily turn into a business dispute. Even if you relied on a written contract, if you wrote the contract yourself (or relied on a contract written by the other party), you may have issues if the contract was “boilerplate”. Not only should you have a written contract, but at the very least, ask an attorney to review the contract. Even better ask an attorney to write the contract for you. Often times, if you or the other party are using a “boilerplate” contract, there can be issues down the road because the contract is incomplete, fails to address every important issue in the transaction, overlook plans for contingencies, or include other loopholes. All of these problems can be avoided by having a business attorney review and/or draft the contract for you. That’s the best way to avoid a breach of contract suit.
2. Partner Disputes
The second type of lawsuit frequently faced by small businesses, but can be avoided, is a partner dispute (which can also be between members or co-owners of an LLC). Many small businesses have one or more business “partners” or owners who assist with the management and/or ownership of the company. However, “partnerships” come with responsibilities, and if one or more “partners” fail to carry their load or act out of self-interest, this can lead to a partner dispute and a lawsuit. The best way to avoid this type of dispute is first of all, have a well-written partnership agreement (or for LLCs a well-written operating agreement), which outlines duties and responsibilities, along with the consequences of failure to meet those duties and responsibilities, and methods of dispute resolution, including mediation and possibly binding arbitration. If you as a small business owner can identify and address problems before they occur, not only can you avoid litigation, but you will improve your business relationships, as well.
3. Employee Problems
The third type of lawsuit frequently faced by small businesses, but can be avoided, is employee problems. As a small business owner, there are many documents which can protect you and your business. Clear and legally supported policies and procedures such as confidentiality agreements, harassment policies, social media policies, and other written policies and procedures are needed to protect your employees and your small business. These polices and procedures communicate expectations to your employees and provide them with guidance as to how to proceed if a policy is violated. Failing to have such policies and procedures, or not following them, can lead to a lawsuit. The best way to avoid a lawsuit would be to hire an attorney to draft your policies and procedures, along with specific employment or independent contractor agreements, which will address the needs of your small business.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.