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.
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