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STRONG PUBLIC RELATIONS HELP TO AVOID LAWSUITS  

I have had many business clients come to me after a former client or employee has sued them.  Their question always seems to be, "How could I have avoided this lawsuit"? I have also had many inquiries from individuals who want to know if they can sue a business for incidents that range from defective products to rudeness.

What I have learned in my practice is that poor public relations can often be the catalyst for a bitter lawsuit.  The resulting lawsuit costs both sides to the dispute thousands of dollars in legal fees and countless hours of anxiety.

I was recently reminded of the importance of public relations on a family vacation.  While waiting to check into a well-known hotel, a heavy brass stanchion fell over and hit my three-year-old daughter in the head.  She was crying and her head was bleeding.  Needless to say my wife and I were upset and extremely worried that my daughter might have a concussion. 

Immediately the hotel's employees took action.  They administered first aid to my daughter, reviewed a list of local physicians with us and arranged for a doctor to come to our hotel room to examine my daughter.  Throughout the rest of our stay they continued to call to see how my daughter was feeling.  They even sent up a pitcher of chocolate milk and a basket of cookies with well wishes from the staff.

Fortunately, it appears that my daughter is fine and although my wife and I are still upset by the incident, the immediate action taken by the hotel employees to help our daughter made a big difference and allowed us to enjoy the rest of our vacation without too much anxiety.

"The most cost-effective way to avoid a lawsuit is simply to be nice to people."

Had the hotel not been as courteous and concerned about our daughter's welfare, our vacation might have been an unhappy memory and the hotel would have lost us as guests and/or be contending with a lawsuit.  Instead, the hotel's good public relations helped alleviate some of the anger and tension we were feeling.

A growing trend is for people to sue when they are offended.

In my years of practice I have noticed a growing trend in people that want to litigate over principle regardless of the amount of money at stake.  This perceived increase in litigation might be the result of the technological age we live in.  It is easy to understand a customer's frustration when they have to navigate through a sea of electronic options over the telephone to obtain the simplest, most basic information.  Often a customer is not even able to talk with a real person.  It is easy to feel isolated and disenchanted.  These feeling often become the seeds of a lawsuit motivating the individual to seek legal counsel.

The most cost-effective way to avoid a lawsuit is simply to be nice to people.  This may sound like common-sense advice.  It is.  However, too often we lose sight of common sense when someone acts belligerent or angry when we feel that his or her anger is undeserved.  The old adage that the customer is always right is not necessarily true.  However, all service-oriented businesses should certainly act like the customer is always right. 

If you do so you will defuse the situation and give the customer a reason not to want to sue you.  You will then be much more likely not only to keep existing customers but also to gain more customers since word will get around that you are customer oriented. 


CHOOSING THE CORRECT ENTITY IS IMPORTANT FOR SMALL BUSINESSES

Unfortunately, we now live in a society where lawsuits are as common as warm weather in Southern California.  In this age of litigation, now more than ever, it is important for small businesses to examine their options in determining the type of business entity in which to operate their business.  

Each type of business entity discussed below has its own advantages and disadvantages. It is up to the individual business person to decide which entity works best for his or her own needs. Below is a brief summary of five different types of business entities, along with some potential problems and benefits that arise with the use of each type of entity. These types of business entities are not all inclusive and an attorney should be consulted when deciding which type of business entity to use for your business.

Sole proprietorship

Most individual owners of small businesses operate what is called a sole proprietorship. This is the cheapest way to operate a business since there are no special state filing requirements to start this type of business and therefore, no fees involved to form the entity.  The major problem with operating as a sole proprietorship is the personal vulnerability of the owner’s assets.  Operating a sole proprietorship means that the sole proprietor, is personally liable for any and all debts and claims made against the business. This means that any and all personal assets of the sole proprietor are at risk, including homes, cars and other assets.

Partnership

A partnership can be formed where two or more people operate a business. The partnership differs from the sole proprietorship in that there is more than one person that owns and is responsible for the business.

There are certain tax advantages in operating a business as a partnership rather than as one of the other business entities discussed below. However, just like the sole proprietorship, a partnership carries the same potential for the personal liability of each partner.  Thus, if the partnership is sued, each partners personal assets are at risk.

An additional potential problem is that each partner can bind the partnership and other partner(s) to contracts. If your partner is making bad business deals and the business fails, all partners personal assets are at risk to satisfy any and all debts owed by the business. 

Limited partnership

Another type of partnership is called a “limited partnership”.  A limited partnership has at least one “general partner” who like the other two entities discussed above, has full personal liability for all partnership debts. This type of entity also has “limited partners” whose liability is restricted to the amount of his or her investment in the partnership.

Corporation

The major advantage to operating a business as a corporate entity is the limited liability of the corporation’s officers, directors and shareholders.  That means that should the corporation be sued an owner, officer or shareholder of a corporation’s personal assets are not at risk. Instead the only assets that are at risk are that of the corporation. 

However, formation of a corporation is not nearly as simple. In forming a corporation, specific filings must be made with the State and certain corporate formalities must be maintained in order to preserve the corporate status and limited liability of the corporation. Failure to follow corporate formalities could potentially put the individual owners and stockholders of a corporation at personal risk. Additionally, a corporation is more expensive to maintain since yearly fees and taxes must be paid.

Limited Liability Company (LLC)

An LLC is a hybrid entity that has characteristics of both partnerships and corporations.  An LLC has the tax advantages of a sole proprietorship or partnership and the limited liability of a corporation.  An LLC also has fewer formal requirements than a corporation making it easier to form and maintain.  However, the LLC, like the corporation has to pay yearly fees and taxes to the State making it more expensive than a partnership or sole proprietorship.

Choosing an entity in which to operate your business is a very important decision since the choice of entity has serious legal and financial consequences. 


 

DONNER & DONNER - Legal Warriors ®

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