Your Small Business and Small Claims Court Text Size:

It's a simple fact of human nature: Disputes are inevitable. As a small business owner, you will eventually get into a disagreement that can't be resolved without resorting to a lawsuit. Perhaps you're unable to satisfy an unhappy customer who subsequently sues you. Perhaps a vendor owes you money, or fails to deliver products that you paid for.

If you're dealing with a simple, inexpensive legal dispute, the best way to handle it may be through small claims court. These courts handle claims that are valued at less than a certain dollar amount.

Dollar Limits

Each state sets a maximum value for claims that can be filed in small claims court. These limits vary; for example, Arizona caps small claims at $2,500, but Tennessee allows cases worth up to $25,000 to be filed in small claims court. California allows cases of no more than $7,500, while Illinois and Texas limit small claims cases to those worth $10,000 or less.

What Types of Cases?

Rules will vary depending on your location, but small claims courts are designed to hear only certain types of cases.

Examples of the types of disputes that are handled by small claims courts include:

• Breach of warranty
• Failure to pay for a product or service
• Failure to provide a product or service that's been paid for
• Debt collection

A small claims court would not resolve cases such as:

• Bankruptcies
• Criminal cases
• Lawsuits against the federal government

If You Want to Sue in Small Claims Court

Review the small claims court information for your state - a court Web site is a good place to start. It should describe the process and requirements for suing in small claims court.

Before filing your lawsuit, make sure that the case is eligible to be filed in small claims court. To be eligible:

• The court must have jurisdiction over the case; this means that the person being sued must live in the county where the suit is being filed or do business in the county, and the court has the authority to decide the case
• The case must be filed within the statute of limitations, which is the maximum amount of time that you can wait before filing a lawsuit
• The case must fall below the maximum dollar threshold for the claims the court will consider

Go to the court house, fill out the necessary paperwork and pay the filing fee. You'll also have to pay to have the claim delivered to the party you're suing.

Also, decide whether you want to be represented by an attorney. Small claims court is structured so many people represent themselves, and in some places, parties aren't allowed to use an attorney in small claims court cases. However, only you can decide if it's worth hiring an attorney to represent your company. If you aren't comfortable speaking in public or don't have sufficient time to prepare your company's case, it may make sense to hire an attorney.

If Your Business Is Sued in Small Claims Court

If you are notified that a case has been filed against you in small claims court, it's important to understand your rights and responsibilities. Start by visiting the Web site for the court in your state, that should contain guidelines, rules, suggestions and practical advice.

Preparing for Court

Many court cases are lost because people fail to adequately prepare for their court appearance. Don't assume that you can simply show up and win your case. Preparation is the key. Among the things you should do to prepare:

• Assemble all of the documents and records to prove your case and bring them to court
• Practice presenting your argument before going to court and make detailed notes to help remember key points
• Locate witnesses who can support your case and make sure they can appear at the hearing

At Court

Because many parties to small claim lawsuits will represent themselves, and have no prior experience in court, small claims judges try to be helpful and patient when the parties appear in their court. The judge will guide you through the process and deliver a verdict at the end of the hearing.

To maximize your chances of success, treat the process seriously, and behave as you would in an important business meeting.

• Dress professionally
• Tell the truth
• Be polite to everyone in the court, including the opposing party
• Give clear, concise answers to questions, and don't ramble
• Ask questions if you don't understand something
• Don't interrupt

Questions of Your Attorney

Even if an attorney doesn't represent you in court, your lawyer can help you prepare your small-claims case. Among the questions to consider asking your attorney:

• Do you have prior experience handling litigation?
• What holes or problems do you see with my case?
• How can I successfully overcome these problems?
• How much do you charge for your services?

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