Six Ways an Entrepreneur Can Protect Their Assets

Posted on June 3, 2008 by David Gass 1 Comment

Litigation in America is out of control, especially for small business owners. Legislation is not getting passed to stop the frivolous lawsuits and laws in place now such as Rule II of the Federal Rules of Civil Procedures have been hamstrung by changes that loosened its effectiveness. Product liability laws are intended to protect consumers from injury due to unsafe products. Yet our current law doesn’t distinguish between the manufacturer and the seller of the product. This puts small business owners who sell products at risk from the defects of the manufacturer.

These areas don’t even to begin to talk about the lawsuits filed by employees against their employers. The number of lawsuits filed against small business owners is getting out of hand and we need to protect ourselves so we don’t lose everything because someone thinks they can win the lottery by suing our company.

Six things you can do to protect your business:

#1 – Incorporate Your Business. You need to separate your personal assets from the company. Forming a Corporation of Limited Liability Company will separate you from the business and provide a “corporate veil” around your company.

#2 – Key Person Insurance. Any business that largely relies on one employee, like a top salesperson or experienced manager, for its success needs Key Person Insurance. This covers a valuable employee in case he or she falls ill, or worse. In the event the key person can not work, the insurance reimburses the company for lost profits the person would have generated.

#3 – Business Property. Business property insurance protects against physical damage to your property. Any business located in an area at risk for natural disasters, this type of insurance is a most.

#4 – Business Interruption. This covers loss of profits, payroll and outstanding bills if your business is forced to close for a period of time due to one of the covered causes. A terrorist attack, flood, fire and other natural disasters can be covered in this insurance.

#5 – General Liability. This will protect if sued for any accidents or injuries that take place on your property. If you lease a building you are often asked to provide proof of General Liability Insurance up to a certain amount.

#6 – Umbrella Coverage. This is added protection to your workers compensation, business property, auto insurance and liability policies.

While insurance isn’t the complete answer, it does help to have it. Entrepreneurs will put up a good wall of protection from their personal assets with a corporate structure and proper insurance coverage.