Thursday, January 10, 2013

How to Protect your Company from a Lawsuit

Nobody likes getting sued. If you’re a start-up, a lawsuit can bring your business to a screeching halt.

On some level, you can’t ever provide 100% protection against a lawsuit. Anyone can sue anyone at any time. The issue becomes whether that lawsuit has merit or not. Hopefully you can institute the following steps to make sure you would be protected against lawyers bringing frivolous lawsuits against your company.

Step 1: Be patent and copyright compliant

If you are selling a product that you invented, you should have patent and copyright protection in place before you make any sale. There are plenty of internet resources you can tap into that will let you determine whether or not you might be infringing on someone else’s copyrighted material. If you’re making a new product is “like” another product then having your own copyright or patent should insulate you from a lawsuit going forward. This type of research should also apply to any type of logo or other marketing device you intend on using. For instance, if you’re selling a new patented blend of cotton T-shirt but have Mickey Mouse imprinted as the design you could be sued by the Disney Company unless you have licensed that image.

Step 2: Incorporate

As the sole owner of a start-up business, you might think it’s not necessary for you to incorporate yourself. After all, you’re making all the decisions, right? In truth, incorporation provides a layer of protection against liability. If your business is sued it would only be the assets of that incorporated business that would be at risk. All of your personal assets would be safe. In the worst case scenario, an incorporated business can declare bankruptcy and you can turn around a start a new business the next day with a new corporation.

Step 3: Always get it in writing

There isn’t an aspect of your business that couldn’t benefit from a well written contract. Whether that document is between you and an employee, vendor or client having all the terms clearly spelled out will help reduce the instance when someone could find fault with your practices. That’s why contracts should always include clauses to consider all the possibilities of a particular outcome. 

Step 4: Don’t steal staff

Too often the best potential workers are already working somewhere else. There is nothing wrong with hiring a worker away from another company. It happens all the time. However, when you get into situations where intellectual property is involved it might cause some problems down the road. For instance, if you’re starting a mobile game development company and you poach a great designer from another company, that company might take exception with the kind of knowledge their former employee is bringing to your company. This is why there are non-compete clauses in a person’s severance contract. If you are hiring someone in a situation like that make sure they are coming to your business free and clear.