What Happens When Your Business is Sued

Business owners that haven’t been sued can get anxious at the mere mention of a lawsuit. Some even assume there are dramatic confrontations with somebody saying, “You’ve been served.”

People that have been sued know it’s closer to being diagnosed with an underactive thyroid, but without the intimacy of talking face to face with a doctor.

It’s going to come in the mail more often than not. And the smart money would bet that you’ll see it coming because most attorneys will send a demand letter first. The letter will explain who the signed attorney represents, the act or acts that give rise to the demand, and the amount of money they want to go away.

This is where the situation changes depending on the type of claim filed and your company’s structure.

First, if the claim is of the negligence variety, you can hopefully pass the matter along to your insurance company. It’s why you pay those premiums every month.

The insurance company will likely conduct a quick investigation, assess the value of the claim and negotiate with the injured party to keep the matter out of court. In fact, the insurance company doesn’t always have to keep you in the loop before accepting a deal.

But if insurance coverage doesn’t apply, the corporate structure would come into play. If you filed paperwork to create a separate legal entity, like forming an LLC or corporation, you will personally be in the clear unless a rare exception puts you on the hook.

Additionally, if the cause of action is based on a business transaction, insurance probably isn’t involved. Any partnerships’ or sole proprietorships’ liabilities will ultimately fall into the laps of the people behind it. The corporations and LLCs will shield their shareholders from the company’s debts.

The best things you can do every day to protect you and your business are simple. Ensure that you put an emphasis on training and accountability to eliminate as much negligence as possible. And keep thorough records of your company’s transactions and actions in case you ever need to rebut a claim.

The severity of every lawsuit is different. If you’ve been contacted by a claimant or just want to be proactive, contact King Law at 1-888-748-KING. We’ll work through the options with you to help you make an informed decision.