There’s a common threat lurking around startups that every founder should know about. It’s not raising capital or marketing. In fact, it has nothing to do with growth.
Commercial litigation.
It’s every startup founder’s worst nightmare. Someone sues you, and suddenly, your startup is facing an uncertain future. Oh, and it costs tens of thousands of dollars.
Successful companies get sued all the time. But small businesses with limited resources aren’t equipped to handle litigation. That’s why it’s so important to understand.
Let’s dig into commercial litigation. This article covers what it is, why startups are likely targets, and how you can protect your business from lawsuits.
What You’ll Discover:
- What Is Commercial Litigation?
- Why Are Startups Likely Targets?
- The 4 Most Common Business Disputes
- How To Protect Your Startup From Commercial Litigation
- When To Hire A Business Litigation Lawyer
What Is Commercial Litigation?
Commercial litigation is any legal dispute between two businesses. It can involve breach of contract, partnership or investor disagreements, employee lawsuits, intellectual property theft, etc.
Essentially whenever a disagreement cannot be resolved between businesses (or an individual and a business), it results in litigation.
Here’s the problem with litigation…
Startup founders don’t spend much time thinking about legal disputes. In fact, most assume that something like that won’t happen to them. But once reality sets in, it’s too late.
Having a business litigation attorney on your side can drastically change the situation in your favor. Partnering with a Tennessee business litigation attorney ahead of time can also help startup founders avoid simple mistakes that can turn into costly lawsuits. You should always try and avoid litigation if at all possible.
Not only that, but studies show that 90% of businesses will be sued at least once.
You shouldn’t wait around hoping that your business avoids being a part of that statistic. Instead, you should learn what you can do to protect your startup from commercial litigation.
Why Are Startups Likely Targets?
Are startups too small to be sued?
Au contraire mon frère.
Small businesses are likely targets for litigation due to a variety of reasons. For starters, they don’t have the proper legal documents in place. Second, startup founders aren’t seasoned business people with years of contracting experience.
Lastly, startups tend to grow at exponential rates. They focus more on growing than they do on things like legal ramifications.
Here are some other reasons why startups get sued:
- Startup companies tend to forego written agreements with “friends” they’re initially partnering with
- Many startup founders don’t differentiate between personal and company money
- Worker classification is a huge issue with startups
- Small business owners don’t think about intellectual property protection
But there’s another reason startups tend to be sued left and right.
Big businesses know that startups don’t have the financial backing to engage in lengthy courtroom battles. That makes smaller businesses easy targets for huge companies to bully with litigation.
The 4 Most Common Business Disputes
Not all lawsuits are created equal.
While there are many different types of commercial litigation, some business lawsuits happen much more frequently than others. It’s best to know which ones you should watch out for the most.
Contract Disputes
You already know that contracts are extremely important to a startup. But do you know how common contract disputes are in the world of business litigation?
They’re the most common!
Businesses sue each other over contracts more than any other reason. Whether a vendor didn’t deliver on time or a client didn’t pay, contract disputes are everywhere.
On average, contract lawsuits can cost your business anywhere from $54,748 to $91,249.
Employment Claims
Employee lawsuits are becoming more and more common.
According to a recent report by Counterpart, 37% of small businesses had an employee lawsuit filed against them last year.
These claims can range from wrongful termination to discrimination, or even wage disputes.
What many startup owners don’t realize is that they misclassify employees as contractors. When that’s discovered, you’re met with severe penalties and back pay.
Partner and Investor Disputes
Ever heard the saying, “too many chefs in the kitchen?”
Venturing into a business with someone is always tricky. Two founders will have different visions for the company. When that happens, you’re headed for a lawsuit.
Business partners will sue each other over things like equity splits and who has final say on business decisions.
Intellectual Property Theft
Protecting intellectual property is critical. But that doesn’t mean others will follow suit.
Your competitors will steal your trade secrets. Former employees might take confidential information with them to other jobs. Others may even sue you for intellectual property infringement.
While IP lawsuits can be very expensive and complicated, it’s essential to protect your idea.
How To Protect Your Startup From Commercial Litigation
The best way to protect your startup from litigation is to prevent it from happening in the first place.
And the best way to do that? By following along with this section.
Get it in writing.
This can’t be stressed enough. If you don’t have something in writing, it didn’t happen. Always get agreements in writing with your partners, vendors, contractors, and employees.
Use an LLC or corporation.
Operating as a sole proprietor leaves your personal assets vulnerable in the event that you are sued. Form an LLC or corporation to protect yourself.
Have clear employment practices.
Create an employee handbook that all new hires must read. Document all performance issues and have a solid procedure for termination.
Protect your intellectual property.
If you have a trade secret, consider filing a non-compete agreement with your employees and contractors. You should also trademark your logo and file for a patent if you are eligible.
Use dispute resolution clauses.
Insert arbitration and mediation clauses into your contracts. It can save you thousands if a dispute were to happen.
When To Hire A Business Litigation Lawyer
Don’t wait until you are sued to contact a lawyer.
By that point, you’ve already lost. Early intervention is key when dealing with disputes. The more time your attorney has to resolve the issue, the more options they have.
Here are some situations where you should consider hiring a business litigation lawyer:
- You’re about to sign a contract or partnership agreement
- One of your employees threatens legal action
- You receive any sort of legal notice
- You can’t come to an agreement with a vendor
- Someone claims you stole their idea
Hiring a business litigation attorney is generally not something you should do on your own.
Contact Ebbert Law today to set up a consultation with one of their experienced business attorneys.
The Bottom Line
Commercial litigation is scary, and it’s something every startup founder should know about.
Many businesses will be sued at least once in their lifetime. While startups are likely targets, there are ways you can protect yourself from frivolous lawsuits.
Remember:
- Learn what commercial litigation is
- Understand startup’s likelihood of being sued
- Familiarize yourself with the most common types of disputes
- Follow the steps to protect your startup
- Build a relationship with a business litigation attorney ahead of time
You can’t prevent every lawsuit, but you can prepare your startup to overcome one.
