Reducing Liability for SMBs

If most people realized how much risk they face every day when owning a small or medium-sized business (SMB), they might think twice about being their own boss or having an ownership interest. Thankfully, there are ways to protect yourself and your personal assets from getting taken by a creditor or someone to whom you might have liability.

A Maryland business attorney can evaluate your liability risks and help you formulate a practical strategy for minimizing your risk exposure and reducing liability for SMBs.

Small Business Liability

If you own a small or medium-sized business, defined as having less than 100 employees and between $5-$10 million in annual revenue, you could get sued by customers, visitors to your place of business, vendors, employees, and others. You might feel relatively safe from lawsuits if you work remotely in a field like consulting, web design, and other industries in which you do not have a physical location open to the public, but even people in those situations can get sued. From product liability lawsuits to slip and fall claims and business contract disputes, anyone in business can get sued.

Don’t Ignore Business Problems

Often, a company gets sued because of a problem that could have been addressed early on but got ignored. After all, most people do not go into business to deal with conflicts and disputes daily. They go into business to do the work of that business and make a profit. Unfortunately, crossing your fingers and hoping a situation will go away on its own will not solve every situation.

To decrease your daily stress and potential liability, it is a best practice to develop protocols that pay attention to warning signs and maximize the quality of customer service and satisfaction. Your Maryland business attorney can talk with you about policies you might want to implement in your company. Also, there are countless nonfiction books written for business people. You might want to check some of those that focus on your industry.

One of your essential protocols should be addressing complaints from your customers, vendors, contractors, and others. There should be an immediate response to every complaint and follow-up to make sure the dissatisfied party feels heard, respected, and treated fairly.

Insulate Your Personal Assets with the Right Business Structure

If you own your company as a sole proprietor, you can get sued personally by people with complaints or claims against your business. Consider a type of business structure that keeps your personal assets, like your home, vehicles, investment accounts, savings, and other assets safe from business creditors. 

Two of the more popular business structures for small or medium-sized businesses include S corporations and limited liability companies (LLC), according to QuickBooks. If you have an S corp or an LLC as your business structure, the business assets,  but not your personal assets, could be at risk for claims and debts of the company. 

An S corp is often a good option for family-owned companies. An S corp has tax advantages over a regular corporation, but you can only have up to 100 owners and it is more difficult to set up and maintain an S corp than an LLC. An LLC has fewer formalities than an S corp, but if you plan to pursue funding from outside investors, they might prefer to invest their money in a regular corporation, not an LLC.

Buy Business Insurance

Your budget should include the payment of monthly, quarterly, or annual insurance premiums for a number of types of coverage. Besides creating a business structure that protects your personal assets from liability, the right kinds of insurance can help you stay in business when bad things happen. Your insurance coverage needs will vary based on the type of business you own. Here are a few examples of common types of business insurance: 

Real Property Liability

If you have a physical storefront, office, storage facility, manufacturing plant, or other location, you will want to protect your buildings, other structures, equipment, furniture, files, and other items in the event of a fire, flood, tornado, and other natural or man-made disasters. If you rent the facility, you will want to have commercial tenant insurance. If you own the premises, you will want property owner’s insurance coverage.

Company Fleet Vehicle Liability

If your business owns or leases any vehicles, you should have them insured with commercial vehicle comprehensive and liability insurance. Your personal automobile insurance policy is unlikely to provide any coverage for your company vehicles.

Minimum insurance coverage is often grossly inadequate to pay for the repair or replacement of vehicles as well as personal injury or wrongful death liability claims. You will want to get professional guidance as to the amount of vehicle insurance appropriate for your company. Also, you will want to have uninsured and underinsured motorist coverage that can help pay your losses if an uninsured driver causes a collision.

Workers’ Compensation

Almost every employer in our state must purchase Worker’s Compensation insurance that can pay benefits to people with a job-related injury or illness. A company that does not carry the required Worker’s Compensation insurance can face severe financial penalties from the state. 

Also, an employee with a work-related illness or injury usually cannot file a personal injury lawsuit against the employer if the employer carries the mandated Worker’s Compensation insurance. Worker’s Compensation insurance premiums tend to be considerably less expensive than having to pay a personal injury claim. 

Employee Disability

Offering disability insurance coverage to employees can be a smart benefit to attract high-quality workers and provide income to people if they become disabled. Without a source of income, an employee who becomes disabled might try to find a way to hold the company responsible for the health condition.

Executives’ and Directors’ liability

If your company has executives and a Board of Directors, consider purchasing insurance that protects those individuals from liability. It’s challenging to recruit executives and people to serve on your board of directors if doing so exposes them to the possibility of legal liability. 

Professional Liability Insurance

If you or your employees are in the business of providing professional services, like healthcare, legal, accounting, or financial services, you should maintain professional liability insurance. Some people view professional businesses as a pot of gold they can sue to get “free money.” Professional liability insurance can investigate, provide a law firm for your legal defense, and pay claims.

Cyber Liability

Your company likely keeps some personal information about employees and customers online. In the event of a data breach, those individuals might file a lawsuit against your company for the loss of the private information and the resulting heightened risk of identity theft and other adverse consequences. Cyber liability insurance can protect your company from these claims, pay for investigations, and help to repair any damage done by the data breach.

General Liability

A general commercial liability policy can provide “umbrella” coverage that can protect your company from claims that do not fall under other categories of insurance.

Work With a Maryland Business Attorney

There are many other types of insurance a company might need and other measures that could reduce the risk of liability for small and medium-sized businesses. Talk with a Maryland Business Attorney about the optimal steps to take to protect your company. This information is for informational purposes only, and does not constitute legal advice.