Starting a new business is an inherently risky endeavor. Even the most confident entrepreneur likely recognizes that a significant number of startups fail in the first few years of operations. It is therefore crucial for those hoping to start their own small businesses or professional practices that they address the liability inherent in that process.
A business owner or operator could be financially liable if a product fails and injures a consumer. They could face liability if workers get hurt on the job or claim that they experienced discrimination. Someone starting a business can lay the groundwork from day one to reduce their personal liability. The following are some of the most common and successful tactics for reducing personal liability when starting a business.
Identifying likely sources of liability
Someone enthusiastically rushing forward with a new business concept may not be able to adequately analyze their plans for risk factors. It is often important to consult with an attorney who can identify issues that might lead to personal and organizational liability in the future. Attorneys can also help educate someone about the statutes that apply to the industry in which they aspire to operate. Regulatory infractions can be a source of personal and financial liability as much as employee conduct or defective products.
Securing appropriate insurance
There are a variety of different types of business insurance available, each of which can protect an organization from different types of risk. From premises liability coverage to product recall coverage, insurance can help mitigate organizational liability and ensure that there are resources available to handle challenges that might arise in the future. Those who have identified likely sources of liability have a better understanding of the coverage they may need.
Creating protective contracts
From the terms of a commercial lease to the restrictive covenants included in an employment contract, there are many legal documents that can have a direct impact on a company’s liability and financial obligations. Negotiating appropriate contract terms and having custom contracts in place for certain company needs, such as acquiring talent or taking on new clients, can help maximize a company’s protection while minimizing the overall operational liability. Contracts play a key role in the smooth daily operations of a successful business.
Aspiring entrepreneurs often need help making thoughtful choices as they start a company to protect themselves from liability. Those who have strong guidance and support during the business formation process can move forward with reduced personal risk.