As a startup or small business owner, you have endless decisions to make for your company. One of the most important is how you can protect yourself from personal liability. While many business owners like the freedom of operating as a sole proprietorship, this business structure leaves your personal assets unprotected from your business liabilities. If your business struggles to pay its debts, your creditors may go after your personal assets.
Structure Your Business as an LLC or a Corporation
Forming an LLC, an S-Corp, or a C-Corp protects your personal assets from your business liabilities. Each entity has its own benefits, drawbacks, and tax consequences, but having an entity in place is a great way of reducing your exposure to personal liability.
Contracts and Personal Liability
Whether your startup provides goods or services, it needs strong contracts to limit your personal liability. An experienced startup and small business attorney can draft strong contracts that protect your assets. Using generic forms of the internet may not provide you with the protection that you need.
If one of your vendors presents you with a contract, your attorney can review it to ensure that you are not taking on any extra or unnecessary liabilities. By focusing on the money terms of the agreement (what you are receiving and how much you are paying) you may miss some language that significantly changes your liability profile.
Additionally, when signing a contract, make sure your entity is properly identified, including the “Corp”, “LLC” or other designation, the signature box includes your name & title and the word “By:” appears on/next to the signature line.
General liability insurance coverage will give you financial protection if you, an employee, or one of your products/services injures someone or damages property. An insurance agent can discuss the liability coverage that your business needs.
You may also consider purchasing a personal liability umbrella policy. This gives you extra coverage if someone files a claim against your business that exceeds your liability limits.
Document Your Business Dealings
Keeping excellent records for your business shows that your business is a separate entity. Documents you should keep include minutes from board meetings (if you’re a corporation), all signed contracts, banking, and financial information, as well as any other documents relating to your business.
Co-mingling your personal and business finances blurs the line between what assets belong to you personally and which belong to your business. This co-mingling potentially subjects your personal assets to your business liabilities by “pierces the corporate veil“.
Reduce Your Personal Liability
Without the right guidance, you could face significant personal liability from your startup or small business dealings. Our firm is dedicated to providing your startup or small business with legal guidance to protect your personal assets while you grow your business.
Call the Law Office of Elliott J. Brown today at (732) 490-8200 or contact us to learn how we can help your business today.