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Avoiding Legal Action

One of the most frightening aspects of owning your own business is the fear of being sued. According to research conducted by the National Federation of Independent Business (NFIB), in recent years, more and more frivolous lawsuits have been brought against smaller companies because they are more likely and willing to settle claims out of court than larger corporations are. Simply put, many small businesses cannot afford the astronomical legal costs associated with a potential lawsuit, often reaching $100,000 or more. The U.S. Chamber of Commerce has concluded that business owners spend $128,800,000,000 per year on lawsuits and liability insurance, and over half of these costs are paid by the more than 4,000,000 small companies (with sales of $1,000,000 to $4,900,000 million). The most shocking statistic of all is that almost 45% of these costs are paid by the companies themselves rather than through insurance. There has been some activity generated in Congress to try to limit damages claimed against small businesses for other than financial damages, but nothing has been passed to date.

Because lawsuits are part of your public record, they become part of your credit history as well. A judgment against you will appear on your credit report every time you apply for credit, so it is in your best interest to do everything you can to avoid negative legal action of any kind.

How to Reduce Your Exposure to Lawsuits

Even though there is nothing you can do to ensure that you are never party to a lawsuit, there are many proven strategies that you can employ to make your company less of a target:

Even if you do everything you can to avoid legal action, you may still find yourself facing a judgment or lien being filed against your company. In this case, it is best to settle the lien as fast as you can to reduce the time between filing and payment. These kinds of liens will stay on your public record and be part of your credit history for up to seven years, so the faster you settle them, the faster they will fall off your credit report.