Many business owners face a number of issues unrelated to revenue and expenses. One pressing concern for many business owners is the threat to the business from liability claims. If you are selling a product or providing a service, the danger that you may be the target of a products liability or negligence claim is a reality of doing business. The business could be selling automobiles, landscaping, real estate development or property management, customers in a store - it does not matter because the concern is the same: if I am sued am I personally at risk, and is my business at risk?
Here is a checklist of basic safeguards all business owners should have in mind:
- Do you have sufficient liability insurance in amount and in scope of coverage?
- Are you aware of the various statute of limitations that may protect you from various claims?
- Do you operate as a corporation or LLC so that you are protected personally? Thus, liability would be limited to the entity, not its shareholders, officers or directors. This assumes you observe the corporate formalities so that a plaintiff could not "pierce the corporate veil."
- If the corporate veil was pierced, perhaps the stock is owned in a Trust or separate entity so that you are not personally liable as the shareholder.
- If you operate as an S corporation or an LLC, do you pay out most or all of the earnings to the owners so that, if liability is limited to the entity, there are not significant assets at risk?
- If there are various business activities (e.g., real estate holdings, real estate management, real estate sales) do you maintain LLC's or Corporation's for each business to segregate liability?
- If somehow personal liability attaches to the owners, officers or directors, have you titled and positioned your personal assets so that the personal assets are protected? These personal steps could include tenants by the entirety, trusts, or entities that receive the protection of charging orders.
Each topic in this list could lead to a discussion in and of itself, but this is a good starting point.