Almost every aspect of operating a business generates some degree of liability for the managers, owners, and executives helping run the organization. Every new hire could potentially lead to a major mistake with costly consequences or a lawsuit based on sexual harassment because of that worker’s sense of humor. Adding new products or services to a company’s lineup could mean accusations of poor quality work or defective products that lead to expensive lawsuits.
Entrepreneurs and those helping run businesses often invest quite a bit of time and energy to try to identify and minimize sources of liability. Adequate insurance coverage is a key protection against organizational liability.
What kind of business coverage does a company need?
Once a company has identified its likely sources of liability, it can purchase insurance to protect against those risks. There are many different types of insurance coverage available for growing and established businesses. Some companies just need a general liability policy given their relatively limited scope of operations. Those that are open to the public may want to carry premises liability coverage.
Professionals who provide services may require malpractice or errors and omissions coverage. Product liability coverage is a common investment if a company intends to manufacture consumer goods. Companies may also want to consider coverage that will reduce their financial liability, such as business interruption insurance, which could pay for a company’s mortgage or rent and even staff costs if the company must temporarily stop operating for qualifying reasons.
Companies with employees will typically need to have workers’ compensation coverage. They may also offer health insurance and even supplemental disability benefits as an employment incentive. Insurance can protect a company from direct financial obligations and from financial liability if something unforeseen happens. Enough coverage can protect a company’s assets and revenue from claims brought by unhappy customers or former employees
Minimizing liability often requires outside help
Someone invested in a company’s concept likely can’t be completely objective about the business model and plan. Partnering with an attorney familiar with the business formation process can help not only streamline start-up proceedings but may also potentially help an entrepreneur identify sources of liability that could lead to legal and financial challenges in the future.
Proactively addressing potential liability for a business through both minimization efforts and indemnity through insurance coverage can limit an individual’s exposure related to the organization they start or help operate.