Shield Yourself from Personal Responsibility for Business Liabilities
In the business world, liabilities can arise in many forms and at any time; liability on long term leases, business loans, costs of inventory and accidents that injure clients, just to name a few. One of the common goals of entrepreneurs is to limit their personal exposure to such liabilities. That is, they don’t want their pockets emptied due to mistakes by the business. So, how can an individual limit their personal liability when opening or buying a business?
There are a number of ways a human owner can gain personal protection against the liabilities of a business of which they are an owner. Some of these strategies include, but are not limited to, the following:
- Make sure your business is owned by some type of corporate entity. The most common type is a Limited Liability Company. In Connecticut, with some exception, “a person who is a member or manager of a limited liability company is not liable, solely by reason of being a member or manager, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise or for the acts or omissions of any other member, manager, agent or employee of the limited liability company.” You need to contact your attorney and accountant to make sure you are complying with all laws and requirements to reduce the chances of an injured party piercing the corporate veil;
- Speak to your insurance agent about purchasing large limits of liability insurance and strongly consider adding an umbrella policy or obtaining excess liability insurance. Contact your attorney for a review of the insurance policy;
- Constantly inspect your real property and perform all required maintenance, cleaning and repairs in a timely manner. Correct situations that create health and safety risks to avoid injuries. If you are not sure which maintenance, cleaning or repairs are required, or which situations create risk of injury, contact your attorney;
- Immediately notify any third parties of any problems, conditions or defects that are the responsibility of that party, such as your landlord or tenants. Be sure to comply with the terms of any lease in how notice is provided. If you are not sure which party is responsible for which problems, conditions or defects, or how to provide them notice, contact your attorney; and
- For advanced asset management, consider shielding personal assets from potential lawsuits by holding assets in other corporate entities or by transferring them to other family members. This should be done only after meeting with an attorney and a tax professional. If you wait until after a liability arises, then this transfer could be viewed as a fraudulent conveyance.
Limited personal exposure for business liabilities is not a trick, it is a shrewd business technique employed by many successful entrepreneurs. At The Law Office of Eugene Glouzgal, LLC, we help our clients reach their goals in limiting personal liability while staying compliant with all laws and regulations within their industry. If you are starting a business or buying an existing business, contact us to discuss how you can proceed to better limit you personal exposure.