Owning your own business can be exciting as well as profitable. As your own boss, you can get the satisfaction of building your business and watching it grow, expand, and become successful. You will be able to take your skills and use them to create a growing company that employs a number of people. As you begin your business, you will need to make many important decisions. Some of those decisions can impact your business and your potential for success in the long term. One of the most important considerations is what you can do to limit your personal liability.
What Does it Mean to Limit Liability?
A business has some inherent potential issues. For example, a business could face a lawsuit that could reach thousands or millions of dollars. A vendor could come after you for non-payment or for breaking a contract. An employee might get hurt on the job and file a hefty lawsuit. If the business fails, the company might be in debt and unable to pay its bills. There are many possible ways that a company could be liable. When you start a business, you will want to minimize your exposure so that you do not become personally liable for debts or payments that should be paid for by the company.
Choose the Best Business Structure
When you start your business, you must choose between several options for business structure. If you are a sole proprietor, you alone are responsible for the business as well as for the debts that it may incur. If you want to limit your liability, consider forming a Limited Liability Company, LLC. An LLC structure offers a great deal of flexibility as well as a good way to limit your own personal liability. Another option that offers protection is an S Corporation. It is best to discuss the business structure choices with a qualified attorney before you start your business.
Do Not Sign a Personal Guarantee
When you are trying to start your business, you want to get the funds necessary. Oftentimes, you will need to go to the bank to take out a loan for your business. The money will get your business off the ground and give you the funds you need to jump-start the company. However, be aware of how the bank will secure your loan. Many business owners will do anything to get a loan, including a personal guarantee, such as using their home as collateral. Unfortunately, this action will immediately tie your personal property to the business. If the business fails, you could lose your home, putting you in an even more difficult position.
Keep Your Business Funds Separate From Personal Funds
As a sole proprietor, it may seem easiest to commingle your funds since they are all going to the same place in the end. Unfortunately, this can be a bad decision and can leave you liable in the event that your business suffers a failure or lawsuit. Regardless of your business structure, you should keep all funds and transactions separate from your personal accounts. When making contracts, be sure to make them in your business name rather than personally. This can prevent problems in the future. While keeping funds separate can take more work, it is always best to do so.
Take Out Insurance
An insurance policy is one of the best ways to help protect yourself against debt and lawsuits in a business. Just like you have personal insurance to protect your home and family, a business insurance policy will help protect your business. There are various types of policies, but in general, a business liability insurance policy covers such things as bodily injuries, property damage, medical payments, and more.
Starting a business is a serious undertaking, and it is best to seek legal guidance. To learn more and to get legal help, contact us at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online.