If your business runs into
serious difficulty, will it bring you down too? For example, what if one of
your employees got involved in a serious car accident while working for you?
Will the resulting lawsuit bankrupt you personally?
Here are just a few ways
of protecting yourself against catastrophic losses and lawsuits.
1. Obtain Adequate
If someone slips on the
sidewalk of your home and injures himself, he could sue you for damages. Your
tenant`s or homeowner`s policy may cover you for liability in such an event.
However, what if it is
your customer who falls on his way to visiting your home-based business? You
will need an extra rider on your house insurance to cover such incidental
business use. The extra charge for this additional coverage is well worth it.
If you use a car for
business use, insure it for such. Some people think that they are being clever
writing off automobile expenses for income tax purposes but at the same time
not informing the insurance company that the car is being used for business.
This is false economy. If
you ever get into an accident, police and insurance investigators will
certainly find out that you used the vehicle for business purposes. If you`re
not paying for business coverage, why would the insurance company cover your
As well, what do you think
an income tax auditor would think of your claimed business expenses on the
vehicle when your insurance policy indicates personal coverage only? Avoid
this additional exposure to tax liability.
Be sure to obtain required
workers` compensation coverage. Some have been held responsible for all the
medical and other expenses of an injured worker, as well as fines for
non-compliance to the law. These costs can be quite substantial and even
Consider obtaining product
liability insurance. This applies not just for any products you manufacture
but also for products you sell that are made by others.
2. Incorporate Your
Insurance may give you
some protection against loss. However, you may suffer business losses and
lawsuits that may not be covered by your insurance fully. What then?
An extra level of
protection can be obtained by forming your own corporation. Even though
incorporating yourself will result in extra paperwork and costs, it could be
the best insurance you ever bought.
This is because the
corporation is a seperate legal entity or person. Even though you may own the
corporation, if the corporation operates the business, it is the corporation
that will be sued or suffer loss.
If, for example, the
corporation had severe business losses resulting in debts that could not be
repaid, the corporation would be insolvent. You, as a shareholder, would lose
your investment in the company but would generally not be responsible for any
of its debts. Thus, you would not have to sell your home or other personal
assets to cover the corporation`s liabilities.
On the other hand, there
are cases where directors of a corporation can be held responsible for
liabilities if they didn`t act responsibly. You can`t hide behind a
corporation, commit criminal acts and expect to escape accountability.
For more information about
incorporation, visit: http://www.yenommarketinginc.com/incorporation.html
3. Protect Yourself With
Properly drafted written
agreements can protect you in many ways. First of all, they can sometimes
prevent misunderstandings that can lead to legal problems. Secondly, they may
limit your exposure to lawsuits and losses.
Contracts can limit your
exposure to liability by including provisions restricting the scope of your
work and responsibility, having disputes handled by arbitration rather than
through the Courts, and specifying that the maximum damages payable shall not
exceed the amount of the contract.
A special area to watch
out for is the Internet. There are many laws that impact on websites including
matters affecting children, privacy, earnings claims, and unsolicited e-mail
("spam"). Certain agreements and notices on your website may help to
For more information about
Internet law, visit: http://www.yenommarketinginc.com/internet-law.html
Protect yourself from
catastrophic losses and lawsuits. Take steps today to protect your assets by
limiting your exposure to liability.