What Should Small Business Owners Know About Liability

by Small Business Published on: 17 August 2018 Last Updated on: 29 August 2022

Small Business Owners

As a business entity, you are exposed to certain risks. One of them is the possibility that you will get sued and held responsible for events that you may or may not have caused.

There is a lot of possible situation for any business to face no matter the service they offer or the activity they perform. That is why it’s important to protect yourself from the start in order to minimize the risks or at least be prepared in case of a lawsuit. Here are some things small business owners should know about liability.

1. Create the corporate shield:

The corporate shield is a term used for the action of incorporating your business. This means that you should form an LLC or corporation instead of being a sole proprietor. By becoming a corporation, your company and not you personally will be responsible to handle any debts and liabilities.

As a sole proprietor, this wouldn’t be the case and you would have to use your personal funds to cover the debts and fines. Not to mention that you would be sued personally and not your company, thus you will be protecting your assets and property. Incorporating is not a hard process and LLC is a wonderful choice for small businesses with minimal requirements.

2. Business Liability Insurance:

Business general liability insurance coverage is intended to protect a company from property damage in case of a lawsuit. Before you decide on what form of business liability insurance you will take, consult your agent or broker. Since the forms of insurance depend on your business activity, you will need to cover all the risks specific to it.

There are three types of business liability insurance general liability insurance, product liability insurance, and professional liability insurance. General liability insurance is sometimes the only kind of business need since it covers property damages, claims of injury and negligence, and advertising claims. Product liability insurance is appropriate for companies that are in manufacturing, distribution, retail or wholesale business and defective products they handle may cause harm.

Professional liability insurance is perfect for the professions where a business owner also provides services. They will protect you against errors, negligence, omissions, and malpractice and are sometimes legally required to have. But even if it’s not, you should consider having this insurance in place as a precaution and for the protection of your business.

3. Personal liability insurance:

Incorporating will minimize personal liability, however, it won’t provide unconditional protection. If you personally guaranteed a business loan, were responsible for an injury, performed an illegal activity and mixed your personal and company’s finance. With this type of insurance, you will protect yourself against any damage to your property, including your company.

4. Workers compensation insurance:

Consult personal injury lawyers on the best workers’ compensation insurance that will cover medical bills and lost wages in case of injury on the job. This type of insurance is good for the employer and the employees. When it comes to an employer, it protects you from being sued by an injured employee. While, when it comes to employees, it will cover their treatments and expenses caused by the injury.

5. Commercial car insurance:

If your company owns vehicles used for business activities, then you should get commercial car insurance. This insurance will protect you against any liabilities which might arise from the accidents involving your vehicles. In some cases, this insurance is mandatory, although even if it’s not, you should buy it since it will protect you from unforeseen expenses if incidents occur.

6. Data breach policy:

If you deal with classified information or store non-public data on your employees, partners, and clients, you are responsible for their protection. However, it’s not uncommon to have to deal with a data breach and that is why you have to protect your business against the loss due to this illegal activity. Since most of the information is stored on servers and computers, you will also have to invest in state-of-the-art security measures.

7. Directors and officers’ insurance:

If you want to completely protect your company, consider buying directors and officers insurance. This type of insurance is intended to protect the business against any actions they perform that are deemed damaging to the company. Directors’ and officers’ insurance covers expenses and damages which may arise from such behavior and subsequent lawsuits.

8. Umbrella insurance:

Umbrella insurance will cover things not included in the standard policies you have in place. This policy is activated only when all others have been exhausted in case of various major claims and lawsuits. It’s not mandatory, but if you do business in a high-risk industry, you should probably have umbrella insurance.

Final word:

Talk to your lawyers and consult your insurance agent on what would be the most appropriate insurance plan for your small business. Liability is present from the moment you founded your company and started to provide services and products. Since mistakes happen and you simply can’t rely on the low risks your business activity carries, you should at least have general liability insurance.


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Mashum Mollah is a digital marketing analyst, SEO consultant and enthusiastic internet marketing blogger. He is very much passionate about social media and he is the founder Social Media Magazine.

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