Safeguarding Your Business with Insurance

Business owners form LLC’s or corporations in order to shield themselves from personal liability, but many are left unsure of what to do about business liability.  What if a customer trips and falls on the business premises?  What if an employee sues the business, claiming some sort of wrongful conduct?  What if a customer or client makes a claim about the products or services of the business?  Even though the formation of a corporation or a limited liability company offers the small business owner substantial protection from personal liability, most business attorneys and advisors strongly recommend adequate insurance coverage as well. 

Corporate Records: An Ounce of Prevention

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Many small businesses choose to form corporations through which to operate because of the limited liability afforded to corporate shareholders.  This is a wise choice, but merely incorporating is not enough.  In order to actually enjoy the ongoing protections of limited liability, California law requires corporations to keep certain records.  This is true regardless of how the incorporation is accomplished (with the help of an attorney or through a self-help book or service).  Failing to keep proper records puts the corporation's shareholders at risk of personal liability for corporate debts and liabilities.  Since personal liability is exactly what the shareholders wish to avoid by incorporating, every corporation should calendar and complete the following basic minimum paperwork (in addition to the filing of tax returns with the state and federal government, and you should contact your accountant about that):

1.  Statement of Information.  Every corporation must file a Statement of Information with the California Secretary of State each year during the month of its incorporation (or during any of the five preceding months).  For example, if incorporation occurs in February of 2014, the corporation would then file an annual Statement of Information during the month of February, or sometime during the five preceding months, in subsequent years.  The Statement of Information deadline should be carefully calendared by the

Should You Incorporate Your Business?

Forming an entity like a corporation or an LLC (limited liability company) may limit your liability.

One thing many entrepreneurs and budding business owners think about is whether to incorporate a business.  While forming a corporation or a limited liability company (LLC) can cost a little time and money in the short term, it can actually save you a lot of time and money in the long run.    

The primary benefit of forming a corporation or a limited liability company to operate your business is that, by doing so, you protect your personal assets from your business debts, obligations and liabilities.  That is, when you form a corporation or a limited liability company and fund it properly, the entity becomes a separate “person” in the eyes of the law so that when the business becomes subject to a debt, obligation or liability, only its assets (i.e., the money and other assets that exist at the time of the debt, obligation or liability) can be taken and not the personal assets of the person or persons that own and/or operate the business.  This is what is referred to as the “limited liability” you receive when you form a corporation or a limited liability company.  In other words, your liability is limited to the assets in the corporation or limited liability company, and your personal assets are protected.

Deciding whether or not to form a corporation or a limited liability company for your specific business requires an analysis of the debts, obligations and liabilities likely to be faced by the business.  In other words, the business person must analyze, with the assistance of a qualified professional, the types and amounts of liabilities that are likely to arise in the conduct of the business.  If the potential liabilities of the business are significant, then a limited liability entity, either a corporation or a limited liability company, should be carefully considered.

 

If you live in the San Francisco Bay Area and are considering starting a business, or you have already started a business that is not currently incorporated, contact Jeffrey Miller to find out how he can help you strategize.  (650) 321-0410 or jeff@jeffmillerlaw.com