What’s your biggest fear as a business owner? Bankruptcy? Bad reviews? Lack of control? If you answered ‘lawsuits‘, you are not alone. In fact there’s even a word for it: liticaphobia- the fear/phobia of lawsuits and litigation.

Nothing is quite as terrifying for a business owner than receiving a summons or subpoena — you’ve been sued. Aside from being a tremendous distraction to your business, lawsuits are very expensive and emotionally draining– even if you win!

Often, a lawsuit can disable or completely wipe-out a business if that business doesn’t have the proper insurance to cover the claim or cause of action.

While there is no surefire method for how to avoid a lawsuit, taking precautions can save you big in the long run.


Even though you may be struggling to just meet payroll as a small business owner, you owe it to yourself to take precautions against getting sued. Thankfully, said precautions can be effective without taking all your time. They simply require you to (perhaps) do things a bit differently, or set slightly different standards on who you hire and how you conduct business.


First, consider the employee-employer relationship. Read our article about comparing employees to a three-legged stool. When hiring, remember you aren’t just looking for someone who can just do the job but someone who is the right fit for you, your business and the WAY you conduct business. Finding the right employee(s) will help reduce lawsuits from misunderstandings with employees and will lead to happier employees with higher morale. In turn, employees with high morale deliver higher-quality work for your business, therefore reducing the chance of potential lawsuits with customers and vendors.

Second, see our blog article about rogue partners. It may seem obvious, but be careful with you who chose to go into business with. Think of a business partnership like a marriage. The stakes (and emotions) are high and dissolving the relationship can be costly and messy. You need to be in business with people you can trust implicitly.

Third, read our article about SMART Goals. It’s much harder to accomplish day-to-day operations without having goals to reach. By employing SMART goals for both your business processes and your goals as a business owner, you will become more effective and more efficient. In short, setting goals will help lower costs and reduce errors—thus reducing the possibility of lawsuits.

Fourth, read our article about the Speed of Trust. Trust is a precious commodity often overlooked by business leaders. Simply put, businesses and people like to do business with someone they can trust. If you have trust, it can reduce costs and decrease friction in everything you do. Without trust, costs increase and there is friction to everything. A lack of trust significantly increases the chance of a lawsuit when something goes wrong.

Fifth, read our article about obtaining a line of credit. Cash is king. Ensuring you have a ready source of cash in an emergency is absolutely critical to avoiding an expensive lawsuit. If you can get out of a lawsuit by paying someone off (versus paying your lawyer) you will not only save money in the long run, but maintain your emotional sanity and limit the distractions from the needs of your business.

Great business leaders learn to recognize their weaknesses, and use experts to offset those weaknesses.

Finally, don’t be afraid to seek advice in those areas you are not strong in. Just because it is your business does not mean you have to be all-knowing. There is no shame in seeking advice from your banker, accountant, lawyer or consultant. Following the advice of experts will not only help you avoid lawsuits, their advice can potentially reduce the potential damages in a lawsuit or completely deflate a cause of action in court. At the very least seek advice, and then ignore said advice at your peril.

Law 4 Small Business. A little law now can save a lot later.

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  1. First of all I had no idea that there was a word for the fear of a lawsuit.I thought that was pretty cool.
    This article was very informative on how to avoid a lawsuit. Larry provided sound ways help avoid lawsuits be preparing and taking precautions before hand. I thought the first tip of considering the employee-employer relationship was one of the best tips. By putting a little more effort in finding a good employee will really help a business in the longer run. I also liked the last advice on not being afraid to seek advice from others. To go along with this. I think it is important to seek advice from an attorney when setting up a business to help decrease the chances of a lawsuit.

  2. Oh my goodness! Impressive article dude! Thanks,
    However I am encountering issues with your RSS. I don’t know why
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  3. I really like the first precaution mentioned about finding the right employees. My husband is starting his own business and his employee search has been rather challenging as he searches for exactly the kind of people he wants to work for him. I’ve been frustrated at times, but after reading this, I can see how it is extremely important to be judicial in who is hired or not.

  4. These are some great tips for how to avoid a lawsuit. I have a friend that’s starting a business and doesn’t know exactly what he’s getting himself into, and these are going to be some great tips. Same with the links to the other articles you have on all of these topics. Thanks for sharing!

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