Small Businesses Can Protect Themselves From Lawsuits With Better Contract Management

Every business lawsuit is unique. We’re not here to provide professional advice or opinion on the merits of commercial litigation. You should always consult an attorney for advice specific to your situation. What we can offer, based on working with SMBs, is that there are preventative measures small business owners can take now to avoid disputes down the road. It all begins with your contracts.

A business lawsuit is a legal claim brought in court by one party against another. The dispute typically arises over the parties’ relationship. That relationship generally stems from the written contract between them. Written contracts play a crucial role in avoiding business lawsuits by establishing clear expectations, rights and obligations for all parties involved. They provide legal protection and help prevent disputes by outlining the agreed-upon terms and conditions for business transactions, relationships and responsibilities.

Did we say “written contract”? Without doubt the worst mistake SMBs make is not having a legally enforceable written contract in place. You would be surprised just how many small business owners rely on a handshake and fail to put their agreement in writing. A written contract is one of the best ways to avoid disputes and avoid litigation. Witten contracts state the express expectations of the parties and reduce, if not eliminate, the risks of misunderstandings. Written contracts typically also provide the method and venue for resolving disputes if they arise. And forward thinking SMBs can avoid the costs of litigation by including less expensive alternative disputes forums, like mediation and arbitration, in their written contracts.

Business lawsuits may arise from many issues, but a well drafted written contract may anticipate in its language what constitutes a breach of contract. A contract may dig deep and state those issues giving rise to a dispute including, among other things (i) non-payment for goods or services; (ii) delay or non-delivery; (iii) breach of warranty; (iv) fraud or misrepresentation; (v) breach of confidentiality; and (vi) misuse of copyrights, trademarks and patents.

A commercial contract may also include a disclaimer intended to limit or exclude the legal liability of an SMB. A disclaimer is important because it helps communicate risks, limitations or responsibilities associated with the use of the business’s goods or services. A disclaimer may protect a small business from certain legal claims.

While a written contract is the most critical proactive measure small business owners can take to avoid business lawsuits, they should correspondingly ensure that contracts and related business records are archived, organized and accessible. Being able to produce documentation to support your position in a commercial dispute can expedite its resolution, as well as promote a favorable outcome. ?

While it’s important to use and maintain written contracts, small business owners should perform regular contract compliance checks. A written contract isn’t static. It must periodically be reviewed to determine if it adheres to applicable and potentially updated laws and regulations. Such review allows business owners to identify and correct any compliance gaps that may present a risk or violation.

SMBs can perform compliance reviews by taking a few essential steps: (i) identify relevant laws and regulations relevant to your business; (ii) determine whether your SMB’s practices align with them; and (iii) make the requisite changes to your contracts.

Such action plans take time and resources, which are hard on SMBs. Accordingly, small business owners should seek guidance from contract professionals who know business contracts, identify issues and prioritize tasks so your contracts are handled effectively and the specter of business lawsuits can be reduced.?

Commercial contracts are in many ways a reflection of business owners. And that’s especially true of SMBs. You might say that good business owners have good contracts. That means owners who might avoid litigation through appropriate behavior ; i.e., being mindful of their business relationships, creating a trustworthy brand, being reliable, and avoiding social media misconduct, among other things.

Written contracts means taking charge of your small business’s fate. Protecting your SMB from lawsuits by maintaining legally enforceable written contracts is part of running a successful small business.

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