Running a business can be risky. However, we have good news for you… there are ways to limit those risks by limiting your business liability!
If you already operate a business, but you think that you might be taking too many risks, there are certain steps you can take to limit your liability. Some of the things you could do that we’ll explain in more depth in this article are to form a Limited Liability Company (LLC), ensure that your business has adequate insurance, and make certain that you setup contracts between your company and people or organizations you deal with as part of your business.
Forming an LLC
The main reason for forming an LLC is so that you are not individually responsible for anything that might go wrong with your business. A business can give you a wonderful feeling of independence, but once you start a business relationship with the public or you employ just one person, you become liable if anything goes wrong. It is not uncommon to read in the media of businesses and their owners losing everything, simply because they had no protection that limited their liability.
Forming an LLC offers members a veil of protection by giving them limited liability so that they are protected from company debts and lawsuits. Once the decision has been made to form an LLC, a clear Operating Agreement is essential. An Operating Agreement forms the basis of the LLC. It should be drawn up in such a way that it clearly expresses the rights and responsibilities of the membership, how profits are distributed and how taxes are to be paid.
After you form the LLC, you’ve created a separate legal entity. You own the shares in the business and retain control over it, but if your business is sued you are protected personally. If the company falls into debt, your personal assets are not at risk of being lost. It doesn’t mean you can deliberately go into debt, as you still have the duty of care to any other shareholders.
Obtain liability insurance
While setting up an LLC limits your liability in relation to business failure and debts, it does not protect you from activities that could occur on site. This is when liability insurance is important. There are times when accidents do happen, such as a customer tripping and falling on a floor due to torn carpeting or an injury due to faulty equipment used by an employee. Liability insurance will assist in covering medical costs, attorney’s fees and damages that you have legal responsibility for if someone is injured on your property.
If you have the need to use outside companies or personnel to provide a product or a service on a regular basis, you should compile a written contract that is agreed upon by both parties. This also includes anyone that is employed permanently by the LLC. This contract should include details concerning you and the other parties’ duties. It is important to note that the party on the contract at your end must be your LLC and should include the full name and “LLC” at the bottom. If your company name is “Joe’s Furniture LLC”, then all contracts must use “Joe’s Furniture LLC” as the name of the party, and not the personal name of the owner.
By forming an LLC, making sure your business has proper insurance, and establishing contracts to set the terms with employees, contractors, vendors, and sometimes even customers, you can help reduce the risk that comes with owning a business. Additionally, regular advice and discussion about your business with an experienced business attorney is one of the best ways to protect yourself from liability.
Keep in mind that this information is provided to help you make more informed decisions about your business but does not represent legal advice. We always recommend that you speak with an attorney should you have any questions or need more clarity on this subject.
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