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Essentials of a Legal Protection Plan for Your Business

Protect Your Company from Lawyers, Lawsuits and Legal Disasters

Written By: Marjorie Jobe, Attorney at Law and Author

If you are in business for any amount of time, you might be sued. The suit could be filed by a disgruntled employee, a supplier whose bill you dispute, an independent contractor who slipped and fell on your premises, or a customer who claims you developed a faulty product. The scenario possibilities are virtually endless.

The best offense against legal risks and legal abuses is to create a legal protection plan tailored specifically to your own business operations.  You do not have to be a lawyer to perform this important management function, although you may decide to discuss certain parts of the plan with a trusted legal adviser or business attorney. The essential components of a legal protection plan include the following four layers of legal protection: business entity, business insurance, contractual provisions, and employee policies and handbook.

Business Entity Layer
Entity choice for holding and operating a business is important to every business, small, large, new, or established, and it should not be overlooked or treated lightly. Sole proprietorships are rarely advisable in today’s litigious society. In fact, entity choice is the foundation for the insulation of you and your family from the legal risks of operating a business. As your operations grow or change, the entity structure can be changed as well to achieve different goals for the company. The choice affects many factors: liability limitation of owners and managers, state and federal tax implications, marital property issues, estate planning, and transfer issues to children, future partners, or others.

Your legal protection plan should be based upon a solid and well thought-out business structure for your business.  The choice includes legal entity structures such as corporations, limited liability companies, general partnerships, limited partnerships, professional limited liability partnerships and family limited partnerships.  The choice should be reviewed periodically with your accountant and your attorney to ensure that the entity structure of your business coincides with your business goals, specifics and tax situation. 

Business Insurance Layer  
Insurance is a critical part of your business protection plan. Unexpected losses or legal catastrophes can drown your company in debt or damages. Hurricanes, floods, an employee accident while driving a company vehicle, a key man death, an employee embezzlement, a slip and fall on company property, are all examples of the kinds of disasters that insurance can insulate you from.
Insurance options include but are not limited to:

  • general commercial liability policies
  • business property insurance
  • business interruption insurance
  • cyber security insurance
  • owned and non-owned auto insurance
  • worker’s compensation and disability insurance
  • directors and officers liability insurance
  • errors and omissions insurance
  • key man life insurance
  • umbrella or excess insurance
  • litigation insurance
  • business owners policy package
  • business owner’s disability insurance

With all of the options and expenses involved in these different policy coverage choices, the insurance plan for your company must be deliberate, focused and reviewed regularly with an insurance broker or provider specialist. However, business insurance is a critical layer of first line legal liability protection.

Contractual Provision Layer
Every business will enter into numerous contracts for various purposes. From boilerplate form contracts to negotiated and drafted contracts for specific deals, business owners and managers execute them almost daily and many times little time and effort is devoted to reading them. Contracts are an opportunity to use business law for your defense and legal protection.  The common contractual provisions that you should use as a layer in your legal protection plan include the following:

  • Arbitration provisions (these clauses keep your disputes out of the courtroom and out of the hands of a jury)
  • Choice of Law and Forum provisions (these clauses choose what state and what city or county a lawsuit or an arbitration proceeding will occur in)
  • Waiver of Liability (not always appropriate but should be considered)
  • Indemnification clauses (you can force the other party to the contract to pay you back or reimburse you for their liability or mistakes)
  • Termination clauses (you can control how and when a contract can be canceled)
  • Limitation of Liability

Company Policies and Employee Handbook Layer
Written employee policies, practices, and manuals can be powerful tools in preventing employee legal problems and lawsuits. This is true regardless of the number of employees that your company retains. Do not overlook them, treat them lightly, or adopt some dusty, generalized form that you find lying around.  They should be created with care and reviewed annually.
Employee policies that every business should adopt include the following:

  • anti-discrimination
  • anti-sexual harassment
  • arbitration for employee disputes
  • government investigation cooperation
  • drug and alcohol free workplace
  • cyberspace use rules
  • intellectual property policy.

An employee handbook should be adopted that includes the policies, employee procedures, rules and regulations that govern and direct your employee relations.  Employee hiring and firing guidelines are also important to develop and follow as a company policy and as part of employee procedures.

These types of simple and effective legal tools can discourage lawsuits, lessen the cost of legal disputes dramatically, and give you the legal advantage. Legal protection planning can literally save your company. Doing the right thing and practicing ethical business practices is not enough. If you do not plan with effective legal strategies and legal risk awareness, you will be left to react to problems and disputes as they arise. And this type of reactive business practice is never smart or effective.

Whether you have already adopted some of these tools in your own business operations or you have yet to get started in these directions, these four protection opportunities should be part of a definite legal protection plan which is reviewed and revised to accommodate the changes in laws and in your company. With the right strategy and advance legal planning in these four areas that are common to most any kind of business, you can position your company to win or control most lawsuits or legal problems.

Protecting your company property is important, to learn more about managing and monitoring property remotely, click here to read our buyer guide.

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