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Why Should Small Businesses Pay More Than Their Share

A recent study by the U.S. Chamber of Commerce Institute for Legal Reform shows that “small businesses bear an inordinately large share of the costs” of lawsuits in the United States. The study defined small businesses as those with less than $10 million in annual revenue and found that, while those businesses accounted for “20 percent of the business revenues earned in 2021, they bore 48 percent of the costs of the commercial” lawsuit system. The study also found that lawsuit costs per dollar of revenue were over seven times more for companies with less than $1 million in annual revenue than for those with more than $50 million in annual revenue. The study is available here – https://instituteforlegalreform.com/research/tort-costs-for-small-businesses/.

The disproportionate costs small businesses bear in connection with lawsuits is a reminder of the devastating impact even one lawsuit can have on a small business, and that, because of the costs involved, a lawsuit can have a devastating impact even if the business ultimately “wins” the lawsuit after trial. Because of the potential for devastating impacts, small businesses should:

● Seek to minimize risks at the outset of and throughout business relationships;

● Address disputes head-on when they arise in an effort to resolve them before they can morph into protracted disputes issues or lawsuits;

● When lawsuits do arise, tackle them proactively to achieve an early and economical agreed resolution when possible, and the best outcome possible where agreed resolution is not achievable;

● Document everything, including emails, contracts, agreements and any other relevant communications;

● Get specific with your contracts and clearly define the scope, deliverables and criteria for success from the perspective of each party; and,

● Communicate clearly – open communication can resolve many disputes, and ultimately lead to mutually beneficial agreements for all parties involved.

In the United States, parties in lawsuits generally must pay their own attorney fees and do not recover attorney fees from the other side even when they prevail (although exceptions exist when, for instance, a statute, court rule, or contract specifically provides for recovery of attorney fees). Thus, as we have seen over and over, a company faced with a lawsuit from a customer, client, or previously allied business or partner may be able to defeat the lawsuit, but nonetheless suffers the damage of paying and not being able to recover the tens, possibly hundreds, of thousands of dollars spent to defend the lawsuit.

Business Lawyers You Can Trust

For many years, we have been helping our clients minimize their business risks, address disputes that arise, and pursue and defend lawsuits when necessary. We understand how crucial it is to have dependable legal representation, especially for small businesses making decisions that seriously impact future success. If you are looking for help in any of these areas, please feel free to contact us.

This email from Crux Legal provides general information. It does not provide legal advice, and it does not and cannot create an attorney-client relationship between Crux Legal and any reader. No legal or business decision should be based on the content of this email without consultation with a lawyer representing you.