Being a small business owner means you usually have your hands full managing day-to-day responsibilities, handling finances, and looking after your clients. Due to this, it’s easy to overlook the potential legal challenges you could face. However, commercial litigation can be a serious issue if you’re unprepared. Protecting your business from legal risks is essential to avoid costly disputes that could sink your small-scale operations.
In this guide, we’ll look at what commercial litigation is, why it’s relevant, and the steps you can take to protect your small business. Whether you’re just starting out, or already have an established business, it’s crucial that you understand the basics of commercial litigation.
What is commercial litigation?
Commercial litigation, also known as business litigation, is a type of civil litigation in a business context. It refers to the process of taking legal action to protect corporate interests and rights. For small businesses, these kinds of disputes can range from contract breaches and partnership disagreements to debt collection and intellectual property issues. You can learn more about commercial litigation and what it means for your unique business by consulting with a legal firm that specializes in the area.
Why small business owners need to be prepared
If left unresolved, disputes can escalate to the courtroom which often leads to significant financial strain and disruption to your business. It can also result in reputation damage and worst case scenario, the closure of your business.
Even if you run your business to the letter, that doesn’t make you immune to the risk of litigation. In fact, small businesses are especially vulnerable to legal disputes because they don’t have as many resources to deal with them effectively compared to larger organizations. This is why it’s so important to build a basic understanding of commercial litigation, the risks, and what you can do to avoid it.
Common types of commercial litigation in Canada
This list is not exhaustive, but these are some of the more common kinds of business litigation disputes.
Breach of contract disputes
In your small business, you’ll likely have contracts with suppliers, clients, and service providers. When a party fails to meet their contractual obligations, litigation may ensue.
Employment disputes
Employee-related issues are incredibly common and include things like wrongful termination, discrimination, or other workplace disputes.
Intellectual property disputes
Many small businesses rely on intellectual property (IP) like trademarks, patents, copyrights, or even trade secrets! This area is often less understood by small business owners. Despite that, protecting intellectual property (and respecting others) is an intrinsic part of running a successful business.
Debt recovery
Chasing unpaid invoices isn’t just frustrating, but time-consuming, too. On average, small to medium-sized businesses spend 14 hours every single week dealing with late payments. When clients or customers don’t pay, it may be necessary for you to instigate legal action to help you recover the money you’re owed.
Ownership disputes
This is when multiple parties, such as directors, shareholders, or partners disagree on the way the business is being run or certain decisions that are being made. For example, they could have conflicting ideas about how profits should be allocated, or the direction the company is taking.
The commercial litigation process in Canada
Typical steps
- Filing a lawsuit (Statement of Claim)
- Response from defendant
- Pre-trial motions and discovery phase
- Settlement negotiations
- Trial proceedings and potential appeals
How to avoid commercial litigation
Here are some steps you can take to steer clear of any commercial litigation situations.
Have solid contracts
It’s important to have well-drafted contracts to avoid ambiguity. For this reason, you should always get legal advice when creating or reviewing contracts.
Implement clear policies
By developing clear, enforceable workplace policies you can prevent disputes before they arise.
Consider alternatives
Before arriving at commercial litigation, explore alternative dispute resolution processes like mediation or arbitration. These can save time and money compared to a full trial.
Be proactive
Don’t wait to get legal counsel: having a lawyer on retainer is a great idea for small businesses. That way, you can consult with them on matters before they escalate.
How to prepare if litigation is inevitable
When you’re faced with litigation, the most important thing you can do is hire an experienced commercial litigation attorney. They will guide you through the process. Other vital things to do are to document all relevant information, communications, and evidence. You should also take the time to understand the financial implications and plan accordingly.
Protecting your small business from commercial litigation
The consequences of commercial litigation for small businesses can be severe, so understanding the risks and making adequate preparations is essential. Most importantly, take steps to avoid litigation in the first place by having legally sound contracts, clear policies, and regular legal counsel. Ultimately, if litigation becomes unavoidable, seek a specialized law firm to help guide you through.