What Are You Liable For as a New Business Owner?
Most owners think about liability at one point or another, but it’s possible that with everything else that goes into starting and running a company, this detail has slipped through the cracks. Certain businesses are more obviously liable than others. For example, if you run a daycare center, premises liability is likely one of the first things that crossed your mind, as according to Lane and Lane, any property hazard that can leave someone injured, whether it is a dangerous dog or a slippery floor, can be grounds for a case. Liability is going to be something important to learn about, no matter what type of business you own, so here are some things that you should know about liability.
Company Structure Determines Liability
There are all sorts of ways to structure a business. If you don’t create a specific structure, you’ll be considered either a sole proprietorship (if you’re a company-of-one) or a general partnership (if there are more than one owner). When you have this type of company, there isn’t a separation between owner and company, which means that you are personally liable for anything that happens.
You Can Protect Your Assets
Even small businesses should protect their personal assets. If you end up facing a creditor judgment, it could put your assets at risk for up to 22 years. Even a company that doesn’t bring in a lot of money per year is at risk. When you separate your personal and company assets via a formal structure, like a corporation or LLC, you’ll protect the rest of your life.
Formal Company Structures Don’t Protect You From Everything
Even if you do have an LLC, your personal assets may still be at risk in particular situations. For example, let’s say you need to get a business loan. You’ll need to personally guarantee that loan, which means you’re responsible for it. Another example is if you sign a business contract and you use your name instead of your company name, you’ll be personally liable. You also won’t be protected by an LLC if you end up committing a crime as you run your company.
Creating a Distinction Between Personal Life And Professional Life
The best way to protect yourself personally is to always keep a distinct, visible line between your personal and professional life – and anyways, you should be keeping a balance between these two in the first place. Keeping your company in good standing can help ward off any personal lawsuits. One of the best ways to keep your company in good standing is to always stay on top of your annual fees and filings.
There are a lot of fears involved with being a new business owner, and overcoming it isn’t easy. Liability can definitely fall into the basket of the many fears you might be having, but having clear knowledge and being cautious about these issues will help you overcome them and protect yourself.