In today’s world, all small businesses are at risk of getting sued. Unfortunately, any lawsuit, even if it is baseless, can be devastating. While the sources of many lawsuits are somewhat well known, such as slip and fall claims, disagreements with vendors or customers, or product liability, other sources may surprise you, such as partnership disputes and employee wage or discrimination claims. Thankfully, a little advance planning can go a long way in cutting down the chances of being sued, says Attorney James E. Shapiro, with the Nevada Law Firm of Smith and Shapiro, PLLC, located in Las Vegas and Henderson.

We asked Shapiro for his recommendations on how to reduce the chances that your small business will be a litigation target. Here they are:

First, before you go into business with anyone who is not your spouse, you need a proper agreement. Think of that agreement as a business pre-nuptial agreement. It is vital that you agree in advance with your potential business partner on how you will handle the inevitable disagreements and what you will do if you later decide the business arrangement just isn’t working. While these are not normal discussions, discussing these issues while you are both on good terms allows each of you to rationally consider difficult questions without the stress of business weighing on your mind.

Although disputes and disagreements in partnerships may be inevitable, lawsuits are not, and they may even be avoided altogether with some careful thought and advance planning. In addition to having a proper agreement before you start your business, hiring a knowledgeable attorney to help you navigate the increasing complex business world can save you a lot of headaches. The same holds true if you are planning to buy or sell a business. There are numerous pitfalls when buying and/or selling a business that can be avoided with a good contract, reasoned advance planning, and the assistance of a competent business attorney.

Another common area of litigation results from disputes with vendors and customers. On the front end, make sure to follow your instincts. The old adage that “if a deal sounds too good to be true, then it probably is” definitely holds true for small businesses. Be aware of common scams and avoid anything that makes you feel uncomfortable. Be especially aware of vendors and customers who want you to act quickly without putting in place a written agreement. It’s usually not worth the risk. Most vendor and customer claims can be avoided by having a well drafted agreement in place that clearly sets forth the scope of work, the timing of payments, and the limitation of warranties.

Although many small businesses are reluctant to spend resources on drafting agreements, it is money well spent. A well-written agreement not only helps avoid disputes and lawsuits down the road, but also puts the owner in a better position when the inevitable dispute does arise. A good agreement can substantially shorten the length of a dispute as well as keeping attorneys’ fees at a minimum on the back end.

In the food, service and entertainment industries, slip and falls can be substantially reduced with a keen eye and an active maintenance program. Spend the time to identify potential problems and put in writing specific protocols that appropriate address these risks in a timely manner. Having written protocols in place is a good start; however, they will only assist you if you actually follow them. Failure to follow your own written protocols can come back to haunt you. Finally, routine audits of your protocols and procedures are essential.

Another area that many small businesses overlook is their own employees. Keeping employees happy is always the best defense, but it is not bulletproof. Keep up to date on employee wage laws and make sure you follow them. It’s easy to cut corners when you and your employees are getting along. However, if your employees ever get disgruntled, all of the good will you have built up may go right out the window. If you’ve been cutting corners, you’ll probably regret it when you have a falling out with one of your employees. Your best defense is to be a stickler about following all applicable federal and state employment laws.

If you manufacture or sell any products, make sure you have a good quality control program in place, along with proper instructions, warnings and disclaimers. We all laugh about some of the absurd disclaimers we’ve seen, but when you are the one sitting in front of a jury, it doesn’t sound quite as funny. You’d much rather have the consumers laughing at your disclaimer, than at the judgment the jury just awarded against you and your business.

The final advice from Attorney Shapiro? In short, a little upfront planning can save a huge headache down the road. And if you ever find yourself in an uncomfortable situation, talking to an attorney sooner rather than later can help you avoid compounding the problem.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.