July 14, 2024

How to Protect Your Business From Liability


When you run a business, you want to make sure you do everything you can to protect that business. Not only is it your livelihood, but it also represents a significant investment of time and money that you have made. While you can’t prepare for every eventuality, there are some basic steps that you can take to protect yourself and your business from liability.

Structure Your Business Properly

The structure that you choose for your business will depend on the type of business and what fits your business plan best but make sure you are taking a few things into account. As the owner of the business, you are responsible for the financial commitments your business makes, and some structures don’t do much to protect you. 

Sole proprietorships often have lower taxes, but they also open you up to unlimited personal liability, which means none of your personal assets will be protected. On the other hand, a limited liability company, or LLC, separates your personal and business assets. If your business is sued, your personal assets will be protected and vice versa. This is a big reason this is one of the most popular business structures.

Cover Your Insurance Needs

Businesses are legally required to carry a certain amount of insurance, but it may be a good idea to really look at what you need. Requirements will change depending on the size of your business and what industry you are in. At the same time, just because you have the minimum legally required coverage doesn’t mean you are adequately protected. 

If you have physical facilities, you may want to look into covering any assets stored there. Umbrella insurance is designed to supplement your basic liability coverage. This will continue to protect your business, in the case that you do end up liable for more than your business is worth. While hopefully, this will never happen, it can keep your business afloat if needed.

Keep Up to Date on Business Law

Laws can change at any point, and ignorance doesn’t really pass as a defense. It is important to keep up to date with changes in business law to make sure you are compliant with your state and federal laws. The most common laws that change are ones that deal with your employees and other HR issues. If you are unaware of a change and you aren’t compliant, you may leave yourself wide open to a lawsuit. If you have a business lawyer or HR department, they should be able to keep you compliant, but it is important to do the research yourself, so you know what is going on.


Liability is an unfortunate side effect of starting your own business, but you have plenty of tools to protect yourself and your hard work. Taking the proper steps can help reduce the risk and the impact that any liability can have on you. With any luck, all of your proactive steps will pay off, and it will be smooth sailing for you and your business.

Did you enjoy this article? Here’s more to read: How to Reward Higher-Up Employees at Your Business


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