When starting a small business, the legal and liability issues that you face can seem daunting. You’ve got a great idea that you want to bring to the world, but you feel bogged down by choosing the right legal structure and the right insurance coverage. But protecting your personal assets as a small business owner is essential.
Protect Your Assets
You might be tempted to go the easiest route, operating as a sole proprietor and having little separation between you and your business. But as you grow and your business becomes more complex, this arrangement can leave your personal assets vulnerable to claims or lawsuits.
Keep reading to learn about the various legal structures and liability insurance options that can help protect your personal assets regardless of what happens in your business.
Protect Yourself With an LLC
A Limited Liability Company, or LLC, is a legal business structure that keeps your business assets and liabilities separate from your personal ones. If you create your LLC properly and take care to keep your bookkeeping, bank accounts, and assets separated, an LLC can protect you if your business is sued or needs to declare bankruptcy. You can create an LLC yourself on several legal assistance websites, but we recommend consulting with a professional to make sure your LLC is set up correctly.
A single-member LLC (with only yourself as a member) is very straightforward; if you have a business partner (even your spouse), you will need to create a multi-member LLC and determine what percentage of the company each member owns. After switching from a sole proprietorship to an LLC, check with your tax preparer to learn about any changes to your taxes.
Protect Yourself With the Right Insurance
Commercial insurance coverage is the best way to protect your personal assets, whether you form an LLC or operate as a sole proprietorship. Make sure you take the time to understand all of the coverage options so that your assets are protected on all fronts. The right policy for your business depends on several factors.
General Liability Insurance
This is the basic form of commercial insurance and covers your basic liability if someone gets injured or property is damaged in the course of your work. It can cover things like legal fees as the result of a lawsuit, or costs relating to copyright issues. A general liability policy is a good foundation to build on, but it doesn’t cover every situation your business might face.
Business Owner’s Policy
To go one step further than general liability insurance, you may want a business owner’s policy. This kind of insurance generally combines a general liability policy with additional property protection.
Commercial Vehicle Insurance
If you use cars or trucks as part of your business, you need to consider a commercial vehicle insurance policy. While you can use your personal auto insurance to cover vehicles that are used for both personal and business purposes, a commercial policy may provide better protection. If you have vehicles that are only used in your business, they need to be covered by a commercial vehicle policy.
Workers’ Compensation Insurance
A workers’ compensation insurance policy protects your business from costs incurred by worker injury, long-term issues like repetitive stress or lung damage, and even the death of a worker. Many states require workers’ comp if you have insurance, so be sure to check your state’s laws when making a decision about your workers’ compensation insurance.
Commercial Umbrella Policy
One way to make sure you’re covered against a truly catastrophic event is to have the right commercial umbrella policy. This type of insurance policy expands the coverage provided by other policies. Your insurance agent can help you determine the right scope for an umbrella policy depending on your business type, size, and value of assets.
Professional Liability/Errors & Omissions Insurance
For certain types of businesses, a professional liability policy is needed in addition to other types of liability insurance. This type of commercial insurance usually applies to financial losses suffered by a client of the business due to errors or omissions committed by the insured. It is usually needed by professionals like accountants, attorneys, or consultants.
No matter what type of business you own, it’s in your best interest to protect both your business and personal assets with the right commercial insurance policies.