Litigation risk is the possibility that an individual or entity will take legal action against you or your company. Corporations often calculate their litigation risk to implement prevention strategies in areas where they have a high risk.
Types of litigation risk
Business litigation risk is higher than personal litigation risk because companies have more money. Small businesses have a unique vulnerability as well. Large companies sometimes target small businesses over patent, trademark and copyright concerns to limit competition.
The most obvious types of litigation risk are product defects and accidents on business property. Disruptions in service and loss of service are other factors to consider. A company signing a contract with other businesses opens another door to lawsuits. Even if you follow the contract, the entity or individual on the other end might perceive you as breaking it and start a conflict that you might have to defend yourself against.
Strategies for protecting against litigation
Publicly traded companies set aside part of their budget to handle potential litigation issues. Small businesses may want to do the same after estimating the potential costs of the problems they could face. They could also build relationships with business attorneys to find someone they trust for a possible time of need. You could have a business attorney look over your contract and call them every once in a while to ask questions as a way of building a relationship.
Businesses should organize documents that can be used as a defense to a lawsuit. Easy access to evidence that proves your innocence would reduce your stress while giving you more confidence in your ability to defend your side.
Litigation risk is important to consider regardless of how large your business is. You could do everything right but still find yourself facing a complaint.