If you are an entrepreneur you are no doubt aware of the huge risks involved in starting your own business. One such risk is personal liability. When you own a business you assume the risk of being held personally responsible for the actions of your company.
While that may sound scary, it’s an unavoidable risk. You can learn to protect yourself from personal liability though.
But what is a personal liability and how do you set up a business to shield yourself from personal liability issues? In this article, we’ll explain what personal liability is and how you can protect yourself from it.
Understanding Personal Liability
This means knowing what your personal assets are and how they could be impacted if you are sued or held liable for something related to your business. If you are held liable for damages or injuries, you could be on the hook for thousands of dollars in legal fees and settlements. While you may have personal liability insurance to cover some of the costs, it’s still important to take steps to protect yourself and your assets.
Form an LLC or Corporation
Shielding yourself from personal liability can be accomplished by forming a corporation or limited liability company (LLC). This can help separate your personal assets from your business assets. By taking these measures, you can help protect your personal assets if your business incurs debts or obligations.
Get Business Insurance
As a business owner, you are responsible for the safety and well-being of your employees. To protect yourself from personal liability, you should purchase business insurance.
Business insurance can help pay for things like legal fees, property damage, and even injuries to employees. This can help you avoid having to pay out of pocket for these expenses. Business insurance can also help you rebuild after a disaster or unforeseen event.
Create an Operating Agreement
An operating agreement LLC is a simple way to shield yourself from personal liability when running a business. It outlines the business purpose, management roles and ownership percentages, and how profits and losses will be distributed.
This agreement protects the business owners if the business is sued or files for bankruptcy. While an operating agreement is not required by law, it is highly recommended for any business with more than one owner.
Follow the Law
As a business owner, it is your responsibility to follow the law. This includes knowing and complying with all applicable laws and regulations, as well as maintaining accurate and up-to-date records. By staying informed and taking measures to ensure your business is operating legally, you can minimize your risk of personal liability.
Maintain Good Records
Keeping track of your expenses, income, inventory, and other essential business information will help you make smart decisions and avoid problems down the road. If you ever find yourself in a legal dispute, good records will be your best friend. So take the time to set up a good record-keeping system, and make sure to keep your records up to date.
Protecting Yourself and Your Business
By understanding personal liability, you can protect yourself and your business from potential legal problems. You should also form a corporation, get insurance, and create an agreement while following the law and maintaining good records. If you are ever faced with a liability claim, be sure to consult with an attorney to understand your options and minimize your risk.
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