One of the easiest ways to manage the risk of litigation is to make sure that your small business has a separate legal existence from you and your personal assets. This means form an S-Corporation, C-corporation, a Limited Liability Company, a Limited Partnership or a Limited Liability Partnership. A sole proprietorship form or a simple doing business as registration is not good enough.
Creating a separate legal entity for your business and following the corporate formalities, such as, creating shareholders agreements, by-laws, annual resolutions, registered agents, stock certificates, operating and membership agreements, acquiring a Federal Employer Identification Number (FEIN), and Illinois Department of Revenue (IDOR) Registration numbers and a Chicago Business License are some of the ways to help protect you from personal liability.
The next major investment should be a good commercial liability and worker’s compensation policy. This is the minimum required to help make sure that your company or small business is able to satisfy its own debts without being underfunded. If the corporation is underfunded, then you may expose yourself to a piercing of the corporate veil and be personally liable for its debts. Moreover, there should be no commingling of corporate and personal assets, bank accounts, loans, debts, revenues, credit cards and similar assets.
Next, you should file your annual report and prepare annual resolutions for any major decisions you make. Finally, make sure you have an attorney serve as your registered agent for service of process. This will enable you to have your attorney get involved early in the litigation phase of the dispute. The earlier you get an attorney involved the more he or she will be able to do to protect you personally and your small business. Creating good employer practices and policies, and business operations procedures will help further reduce the risk of litigation.
However, understand that the lawsuit is just another part of doing business, it is something that every business owner will face at some point in their life. Thus, make sure you create a good process for investigating and responding to consumer complaints, employee complaints, vendor complaints, and you will be able to prevent the matter from escalating to a lawsuit that is filed with the Courts.
If you have any concerns or questions about your small business and managing the risk of litigation, then please let us know at: www.vrplawgroup.com