A class action lawsuit is a lawsuit filed for a specific group of people that have been wronged or injured by actions made by a company involved in the lawsuit. They’re often filed by employees of the company, or third parties. It is important to know how small business owners can guard against class action lawsuits because they can be detrimental to your business. Even if you win the lawsuit, they can be extremely costly and damage not only your business assets and finances, but your reputation. According to a class action survey conducted by Carlton Fields law firm in 2011, approximately 57% of companies are implementing innovative risk management tools in order to take extra preventative measures against class action lawsuits.
Incorporate Your Business
One way to safeguard your small business against a class action lawsuit is to incorporate your company. By incorporating, you are separating your business liabilities from your personal assets and finances so that if a lawsuit occurs, your loss won’t be as significant. If you remain a sole proprietorship, the costs of the lawsuit and any related mishaps can actually affect your personal finances, savings account, and assets. If you’re in a partnership and your partner is the one with the lawsuit, you will also be charged for damages which can cause you and your business to become bankrupt. Incorporating your business can prevent these astronomical losses in your personal finances.
Consult an Attorney
You should always have a business attorney, as early as when you are forming your business. If you have a small business and don’t yet have an attorney, consult one immediately. Even before a class action lawsuit is filed against you, your attorney can take preventative measures to ensure the validity of your company, protect your personal assets, and write contracts in such a way that they will discourage lawsuits in the future. The business lawyer can also provide important information regarding class action implications, and help you to build a solid foundation. If a class action lawsuit is filed, the attorney is familiar with your business and will be able to pull up your contracts and act quickly.
Separate Business and Personal Finances
Your business and personal finances should always be kept separate to avoid business issues affecting your personal life. When it comes to finances, a class action lawsuit can cause you to go bankrupt, eliminating nearly all of your savings, and personal assets. By keeping these two finances separate, the class action lawsuit may affect your business, but your personal assets will remain intact.
Purchase Liability Insurance
No matter what type of business you have, professional liability insurance is crucial. If when starting your business, you only obtained the basic general liability insurance, it isn’t enough to protect your company from class action lawsuits. Professional liability insurance protects you even further against different cases of class action filed against you. When getting liability insurance, be sure that somewhere in the policy, it states “right and duty to defend.”
Information provided explains how small business owners can guard against class action lawsuits and is extremely important. If you wait until a lawsuit has already been filed, it may be too late to make these changes and protect your business and personal assets. In some cases, you can’t avoid the lawsuit, but you can protect your personal assets from the results of the lawsuit.