Understanding Small Business Liability

by Sean Bryant on November 19, 2012

If you run a small business, regardless of industry, you open yourself up to a wide variety of liability issues that you wouldn’t have to otherwise deal with. As such, it is essential that you understand the different types of liability issues that you could face, and plan for them appropriately.

Setting Up Your Business Correctly

The first step in protecting yourself from personal liability is to setup a business entity. When you first start a company, you are usually a sole proprietor, which means you are personally liable for things. You need to use a site like LegalZoom and setup a company – either an LLC or corporation, to hold the assets of your company. By having a business entity setup, if you are exposed to liability issues, only the company is liable, not you personally.

Getting Insurance

However, just because you have an official company setup, doesn’t mean that you can’t lose all the money in the company due to liability. This is where insurance can be helpful. You can get liability policies to protect your business, so if you are sued for an issue, the insurance can help you.

You can get insurance policies to cover all types of issues: liability from damaging a customer’s property, liability insurance for company vehicles, and even insurance to protect you if you were to have errors in contracts.

If you’re in business, you never know when there may be an accident that causes damage to someone else’s property, and you don’t want to lose your business because of it.

Protecting Your Assets

Finally, you need to make sure that you protect the assets of the company by not “piercing the veil”. This means not using company accounts for personal reasons, and vice versa. If you pay yourself, do so via check and keep accurate records. If the legal entity of the business isn’t protected, you could still be personally liable for any damages your business causes.

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Sean Bryant

Sean Bryant created OneSmartDollar.com in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.
  • Most professional Excel Visual Basic programmers/spreadsheet consultants have insurance in case something goes wrong and data is lost.

  • I’d definitely get liability insurance if I had a business there’s no reason not to and risk is too high when you are not sure what could potentially go wrong. Protection is better than nothing at all. Mr.CBB

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