Learn How Not To Get Sued in Business

How to avoid getting sued in business

Don’t break the law. This may sound like common sense, but thousands of small business owners routinely violate laws by:

  • Not Registering or Legally Establishing A Business,
  • Failing to Report Income or File Taxes Properly,
  • Copyright, Patent, or Trademark Infringement.

In the eyes of the law, criminal cases may put the burden of proof on the prosecutor, but most business issues are handled in civil court where the rules are a lot different. It is not that difficult to sue a business, and even if the case gets tossed out or is decided in your favor, it could cost you thousands to hundreds of thousands to battle an issue out in court.

Lawyers Can Help Protect Your Business

Another common reason business owners (especially employers) get sued is because they create documents (employee manuals, contracts, legal forms, and even email communications) that set them up for lawsuits.

It is important that you have someone qualified to help you set up any document that shows or establishes how your business is set up or run. This is especially important with complicated business structures like corporations, and businesses with partners or investors. Just about anything in writing can be used in a court of law either to help you or to hurt you. Using the wrong words in documents hurt your business later down the road if you are ever sued.

There are many free, or affordable legal resources available to women business owners, and when you do need the help of an attorney, ask the firm if they have a qualified paralegal (cheaper) who can help you set up or review your legal documents.

Many attorneys will work on contingency (they get paid only if they win a lawsuit for you) or may even offer a free initial consultation. To find an attorney call your state bar association.

All businesses, including home-based businesses, that generate income, sell a product or service, use a fictitious name, or take any sort of tax deduction must:

  • Be Properly Licensed and Registered
  • Have an EIN Number (unless you are a sole proprietor)
  • Report income, and
  • File Tax Returns (either on a personal return or a business return and sometimes, on both)

If There is Money Involved, the IRS Wants to Know

Even if you do not make enough money (or have enough credits or deductions) that you actually do not end up paying Federal income tax on a personal tax return, if you get any kind of a paycheck you will still need to:

  • Report Income Earned
  • Have FICA deducted, and
  • If you are self-employed, you may also need to pay self-employment taxes on any profits from a sole proprietorship.

If you pay out any money to employees (including yourself or your spouse) the IRS requires you to submit certain forms and information about the employee(s). Forms you should be familiar with include:

  • IRS Form W-4: Employee’s Withholding Allowance Certificate
  • IRS Form W-9: Request for Tax Payer Identification Number and Certification
  • IRS Form 1040 Schedule SE (If you earn more than $400 from your business)

If you run a tax-exempt organization, the IRS has strict reporting guidelines that require to you track how and where money is spent (in addition to where your income came from).

Copyright, Patent, and Trademark Violations

Understanding industry trends is important and you should study them routinely. You need to know your competition, as well as what products and services people are buying. But relying on “knock-off” ideas will never make you independently wealthy and could be breaking the law.

Never try to capitalize on a marketing idea, product, slogan, jingle, or logo that has been protected by law. If you see something in print, or someone else is already selling it, assume that it is protected. Research what you can and cannot do before you launch a business idea.

To Limit Liability Risks in Business, Get Insurance

Every single business and business owner must have insurance! Any time you conduct business you open yourself to some legal exposure. Even if your business is completely on the up-and-up, this will not prevent someone from at least trying to file a lawsuit of some kind against you or your company.

Having the right type and amount of insurance coverage is not just a good idea but in many cases, business insurance is required by law, necessary to get funding and contracts or to simply operate your business.

If your business involves services or activities that can be risky for customers or participants, make sure you get your customers to sign a release of liability form before they begin the activity. This will protect you from being sued should there be injuries.