An Ounce of Prevention - How Businesses Can Minimize the Threat of Litigation

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An Ounce of Prevention - How Businesses Can Minimize the Threat of Litigation

By: LawInfo

Published: 06/2010

Litigation is not only a nuisance for a business; it can also lead to a business’s demise. The uncertainty of pending litigation can make existing and potential investors nervous and unwilling to provide the resources necessary for the business to succeed. The damage may be done even if the business is ultimately cleared of any wrongdoing. Of course, if the business is found liable for wrongdoing during litigation then the outcome can be even worse. In addition to losing investor confidence, and possibly good will from customers, the business may be required to pay damages that significantly harm its bottom line. Therefore, it is important for businesses to take precautions to prevent litigation whenever possible.

It is possible to prevent many types of potential litigation simply by implementing good business practices. There are many different types of litigation that can face a company but if the following policies and records are in good order than many cases can be averted. For example:

· Good Financial Record Keeping: this is essential to any business. You need to have complete financial records that are properly updated and maintained, and that reflect all of your profits, expenses, and other financial transactions. These records can help you avoid litigation on tax issues, investor issues and other important matters.

· Written Policies and Procedures: businesses should have written employment policies and procedures that ensure that similarly situated employees are treated fairly in order to prevent employment related litigation.

· Personnel Files: records of employee reviews and employee discipline should be maintained so that any allegation of discriminatory dismissals or other improper employment allegations can be properly defended.

It is important to consult appropriate experts before developing and when implementing business record keeping policies and procedures. For example, an accountant or tax professional can help you set up your financial record keeping system and periodically review it to make sure that it is being implemented correctly. Similarly, an employment lawyer can help you develop nondiscriminatory employment procedures and make sure that any adverse employment actions that you take are done in accordance with established policy and properly documented in personnel files.

Business recording keeping policies and procedures will not provide complete immunity to litigation for businesses but they can greatly reduce a business’s likelihood of being sued. They can also be helpful if a business is sued and may provide for a quick dismissal or settlement since it is easy to obtain and interpret the information regarding wrongdoing.

While the best time to start keeping and implementing good records, policies and procedures is when you start your business, it is never too late to implement good practices. You can protect yourself against the threat of future litigation by implementing good financial record keeping systems, establishing employment policies and procedures, and maintaining complete personnel files at any time. Although these steps will significantly reduce, not eliminate, the threat of litigation, you can sleep well at night knowing that if you are sued that you have the necessary documentation to properly defend your business.