Guide to Keeping Your Business Out of Court

Without a good legal strategy, your business could face financial ruin

By Tom Nutile

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Going to court can be extremely costly. Attorney's fees in a large court case can drive a small company or a start-up out of business. Even if you win at trial, the legal costs can amount to more than you recover. Here are smart moves to decrease your chances of going to court:

Don't over-promise or misrepresent future financial performance in documents that go to the public and potential investors.
Write into your business plan the financial risks you face, be it competition, costs of goods, loss of an employee or changes in the economic climate. This minimizes legal claims of non-disclosure of crucial information.
Put language in your business plan that addresses regulatory requirements you face and your strategy for complying. This, too, can decrease chances of a suit for non-disclosure.

Action Steps
The best contacts and resources to help you get it done

Hire the right attorney to draft start-up documents

To avoid legal snafus, you need a lawyer who specializes in business start-ups, is licensed in your state and knows the ins and outs of local business law.

I recommend: The American Bar Association has a Lawyer Referral and Information Service that can link you to lawyer referral operations in each state and Canada. Or you can search for a lawyer by name at Martindale-Hubbell.

Ensure your business meets all state and federal requirements

Failure to meet federal, state and local requirements for registering and reporting on your business can land you in legal trouble and might result in a court date.

I recommend: Check this federal and state-by-state directory of statutory code and business registration agencies.

Alternative Dispute Resolution (ADR) is a way to avoid court

ADR can cut lawyers' fees, keep you out of court, and resolve issues faster than a trial. Two common methods are by using a mediator or an arbitrator to resolve legal disputes.

I recommend: Use arbitration services arranged by the Better Business Bureau or find an arbitrator through the National Arbitration Forum, get a list of mediators at Mediate.com; or mediate a dispute online at the WebMediate site.

Protect your intellectual property

Make sure you guard your unique and proprietary brand names, processes, methodologies and products through copyrights, patents or trademarks. This can keep competitors from copying you and head off a court battle on these issues.

I recommend: Learn about copyrights, patents, trademarks at the IP section of FindLaw.

Tips & Tactics
Helpful advice for making the most of this Guide

At the first sign of a potential legal issue, call your attorney. Even at $400 or more an hour, it can be cheaper to get advice and solve the problem at the outset rather let the situation fester until a lawsuit our court date is unavoidable.
Don't threaten to sue unless you really mean it. Your adversary may make a a preemptive strike by filing a declaratory judgment suit against you in his home jurisdiction.
Handle a problem employee situation at the beginning; set goals for the worker to achieve and create an official paper trail about the unsatisfactory performance.
Purchase adequate liability insurance for your business, your officers and your directors.
Address an accounts-receivable issue early, when it is of manageable size; don't be afraid to write it off if necessary.
Correct a customer-service problem as quickly as possible; bend over backward to please the customer by doing a little more than necessary to rectify the situation.