There are some days—months even—when owing a small business can feel like taking a tour through the world’s scariest haunted house—dark and scary with the unknown lurking around every corner. In a haunted house those unknown horrors can send you screaming and running for cover (that’s if you’re anything like me in a haunted house). In business those unknowns can send you, well, screaming and running for cover, too! There are a lot of scary unknowns that a small business can face, but none more horrific then getting slapped with a lawsuit. It’s understandable that a lawsuit can induce fear. A lawsuit, even a meritless small one, can mean attorney’s fees, disruption to your business, a possible money judgment against your business, and a tarnished reputation. But handled correctly, a lawsuit doesn’t have to send you screaming and running for cover.
Ignoring the lawsuit and not responding is the absolute worst thing you can do. The person bringing the suit, the plaintiff, can ultimately obtain a default judgment against you —i.e. the matter will be decided even in your absence.
Not acting quickly is almost as bad as not responding at all. Generally you will have 30 days to response to the complaint. You’ll need the full 30 days to investigate the facts of the case, determine your strategy, and if necessary locate counsel to represent you.
In many instances, a small business owner may go the do-it-yourself route for their legal needs. This isn’t one of those times to do it yourself, and in fact you probably cannot. Most state laws generally prohibit any business entity other than a sole proprietorship from appearing in court except through an attorney authorized to practice law in that state. If your business is set up as a corporate entity, such as an LLC (as opposed to a sole proprietorship), you will need to retain an attorney to represent the entity.
When it comes to legal counsel, getting hit with a lawsuit is not the optimal time to interview counsel for your small biz (click to tweet). Think about forming a relationship prior to catastrophic events. Check out a prior blog post I wrote about selecting an attorney here.
Also, don’t just hire an attorney to handle the lawsuit and wash your hands of the matter. Stay on top of your attorney and make sure you understand the process, the status of the case, and the attorney’s strategy.
In a few jurisdictions, business owners are permitted to represent their entities in small claims court. If your business is sued in small clams court, where generally a maximum of $5,000.00 is on line, you may want to handle it yourself if permitted and avoid paying attorney fees if the matter is simple. In that instance you may still want to pay an attorney just to consult on the matter and provide you guidance.
Being able to learn from mistakes and quickly adapt is integral to the longevity of any small biz. Think about the gaps you may have that actually led to the lawsuit and fix them. For instance, if it’s dispute with a customer over the quality of your work, make sure your agreements and relevant documentation are clear regarding what clients can expect in terms of the finished product.