Liability insurance protects you if you are negligent and injure someone else.
Reason One: LLCs offer limited liability and greatly reduced financial exposure for the owners. In other words, LLCs can add a layer of insulation to keep your personal assets safe from a business mishap and add separation between you and your business. Reason Two: LLCs add legitimacy to a new business and portray a higher degree of professionalism than sole proprietorships. Additionally, LLCs offer distinct advantages to those looking for business investment. Reason Three: LLCs offer greater flexibility in terms of changing ownership or adding partners. Reason Four: LLCs may reduce your risk of an IRS or State tax audit. Reason Five: LLCs offer greater flexibility in terms of taxation as members may choose between many different choices of how they would like to be taxed. Additionally, with an LLC, you can change your fiscal year end date to be in line with your business. Reason Six: LLCs may be a useful tool to avoid some of the issues with probate as family members can be added as members to help run the business while estate issues are sorted out. Reason Seven: LLCs offer a simplified corporate form over corporations. For example, corporations are required to have annual meetings, must maintain a minute book, and are typical more complex entities in general..
Get professional help with entity formation. Setting up your own "simple corporation" online may work for some, but selecting the best type of entity for your situation and making sure it is documented and filed properly with the state can be a very involved process and mistakes in this area can be very costly down the road. In my opinion, it's worth hiring an attorney who handles entity formation to help with this task. After the entity is formed, be extremely diligent about keeping your personal funds separate from your business funds. Meet with an insurance agent about your insurance needs. Almost every business needs general liability insurance, and if you have employees -- especially those with high risk, physical duties -- you should look into what other types of insurance are required or recommended. Think twice about being a copy cat. Did you sign a noncompete or confidentiality agreement with a previous employer which may still be in effect? Did any of your employees? If so, an attorney consult is in order. Other areas of controversy with former employers or competing businesses include similarity of websites, retention of or use of customer lists or contacting previous customers, hiring former co-workers, and copyright infringement. Your business competitors will be looking at your website, facebook page, advertisements, etc. so try viewing everything you publish with a critical eye. Start thinking about employment rules and procedures. This is another area where new businesses sometimes pull materials from the internet that are not really suited to their business needs. Having a policy that doesn't fit your organization can sometimes be worse than not having a policy at all. In Texas, a good place to start is the Texas Workforce Commission's website, which publishes Especially for Texas Employers -- an online manual covering many basic employment issues and giving some sample policies. A free paperback copy of the book can be ordered on the Texas Workforce Commission's website, www.twc.state.tx.us. Have an attorney review every contract before you sign it. For every small business lawsuit I've defended, there's a business owner who has said in hindsight "I wish I'd paid you to review this contract before I signed it." Spending a few hundred dollars now in attorney's fees may save the business thousands of dollars and much energy and frustration down the road. This pertains to leases, advertising agreements, contracts for communications services, supplier contracts, and more. Even if the other party to the contract is not willing to negotiate on the contract terms, having a clearer understanding of the obligations being undertaken provides the business owner with information that may be crucial to future planning.
The Special Relationship Between an Insurer and an Insured In ordinary commercial contracts, a breach of that duty merely results in damages for breach of contract, not independent tort liability. Insurance contracts, however, are not ordinary commercial contracts. A 'special relationship' exists between an insurer and its insured stemming from the quasipublic nature of insurance, the unequal bargaining power between the insurer and insured, and the potential for an insurer to unscrupulously exert that power at a time when the insured is particularly vulnerable. This "special relationship" creates a nondelegable duty of good faith and fair dealing on the part of the insurer. Accordingly, an insurer's breach of this duty gives rise to a separate cause of action sounding in tort, nicknamed "bad faith." The Elements of a Bad Faith Claim The essence of the tort of bad faith is an insurer failing to promptly pay a claim absent a reasonable belief that the claim is legally or factually insufficient. Accordingly, to prove a claim of breach of an insurer's duty of good faith and fair dealing, a plaintiff must prove the following elements: (1) the insurer was required under the insurance policy to pay the insured's claim; (2) the insurer's refusal to pay the claim in full was unreasonable under the circumstances because, for example, the insurer: (a) had no reasonable basis for the refusal; (b) did not perform a proper investigation of the claim; or (c) did not evaluate the results of the investigation properly; (3) the insurer did not deal fairly and in good faith with the insured; and (4) the insurer's violation of its duty of good faith and fair dealing was the direct cause of the injury sustained by the insured.
Pick a Business Name and File a Fictitious Business Name Statement Before spending money forming a new business entity for the start-up project, we often recommend the new business owner first pick a name for the business, check with the county recorder to make sure the name has not already been taken, and then file a fictitious business name ("FBN") statement with the Recorder's office of the county in which the business will be located. Most counties allow for the name availability to be checked, and forms to be filled out online and then printed out. The FBN form is filed with the county recorder's office and then published in a newspaper of general circulation for several weeks in a row, after which the "certificate of publication" is also filed with the Recorder's office. The local newspaper can often help with the filing and publication for a modest service charge. Call the paper and ask for the legal advertising department. Obtain a Private Mail Box to Use as the Business' Official Address The FBN form will require the business owner to provide an address. Even if the business is to be home- based, or "online," it is almost always better to rent a private mail box (UPS store, Mailboxes etc. or the like) and use that as the official address for the business. Besides giving the business a more professional look, it keeps the business address separate from the home address. The private mail box also gives the business owner a street address and a place to receive packages. Obtain an Employer Identification Number for the Business The next item is to obtain an employer identification number (EIN) from the IRS so the business owner does not have to use a social security number. EIN's can be obtained online at the IRS website http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online. Consider a Commercial General Liability Insurance Policy Depending on the nature of the business and the level of risk involved, the new business owner may still want to consider getting a basic Commercial General Liability (or CGL) insurance policy to give the owner a level of protection. A basic policy should cost ~$500 - $700/year. Open a Bank Account Once the new business owner has the file-stamped copy of the FBN form from the county recorder and the employer identification number, he/she can open a bank account in the name of the business. In addition to holding the business' checking account and allowing the business to make deposits, the bank can also provide merchant services, that includes things like processing credit card payments for the business. As a general rule, we do not recommend the new business owner open business banking account at the same bank as his/her personal account. It is better to keep the business accounts separate from the personal accounts. It is also better to use smaller business banks or credit unions over big multi-state consumer banks as they tend to offer more personal service to the small business operator. Get Your Tax Advisor or Accountant Involved Early The new business owner will want to get his/her tax advisor or Certified Public Accountant ("CPA") involved early in the start up process to help set up the accounting systems to track the business' expenses and sales, prepare profit and loss statements, balance sheets, etc. Most likely the CPA will recommend QuickBooks or a similar accounting software product. Once the system is set up, it is easy for the business owner to use and maintain, and at the end of the year provide the advisor with the information needed to prepare taxes. The advisor/CPA should also be able to help the new business owner with the California State Board of Equalization to obtain a tax resale number so materials can be purchased wholesale without paying sales tax. Consult a Business Lawyer Finally, the new business owner should spend some time (and maybe a little money) consulting with an experienced business lawyer to make sure the new business complies with any other governing federal, state, or local laws or licensing requirements. The lawyer will also be able to help prepare or review any agreements or contracts the new business may need. Conclusion The foregoing discussion is not intended to be exhaustive, but rather set forth some ideas a new business owner may want to consider when starting a new business.
A limited liability company is not a substitute for business insurance. A limited liability company provides personal limited liability protection which prevents an owner of the business from being liable for "business" obligations merely because he/she is the owner. This gives you protection that a sole proprietor does not and is a tremendous benefit because all businesses will have to subject themselves to risk as a necessary component of running a business and small business lawsuits are file all the time. Insurance Business insurance exists to protect the business itself (and assets held by the business) from certain liabilities in case the business is sued. The LLC protection is there primarily to protect the personal assets of the owners from business liability but not the business assets themselves. Business insurance can do this! LLC The LLC protection does not apply to every situation where an owner could be held liable for a business related action. For example, if you are a personally negligent (ex. you were in a company car and were at fault in causing an accident) when running your business, someone can still sue you personally for being personally negligent. In General You cannot avoid personal actions liability merely because you own an LLC. Insurance can help to cover some of these situations (accident insurance, general liability, advertising liability, professional liability insurance, auto insurance, employment acts, etc.). If you ran a business as a sole proprietorship (meaning you did not make use of any legal entity), then you are personally responsible and liable for any business related activity. The LLC and Corporation provide a shield from this personal liability that you would otherwise have just by being an owner of a business. Is the protection absolute? No, the protection is not absolute. You cannot be negligent or fraudulent or conduct criminal activity and be protected. You are still required to act lawfully regardless of whether you are acting in the capacity of your business or in your personal affairs. You need to consider this carefully in our litigious world.
A landlord insurance policy may cover named perils. Named perils are accidents, disasters and other occurrences that can damage a person's property. Florida requires insurance to cover windstorm damage. Named perils often commonly include fire, flooding, riot, theft and other crime, lightning, smoke and hail. In some cases, an insurance company will claim damage caused by a named peril was actually caused by something else, including the policy holder's own negligence, that is not covered by the policy and will deny a claim. A landlord insurance policy may cover problem tenants. In some occasions, a tenant may cause significant damage to the property. They may rip apart walls, ruin appliances or cause other damage. While the landlord may collect a security deposit, the amount may cover only a fraction of the damage caused. The law or lease may also preclude the landlord from using the security deposit toward certain damages. Some landlord insurance policies cover damage by problem tenants. However, the insurance company may attempt to deny the claim, saying that the damage is normal wear and tear, or that the policy otherwise does not cover the damage. A landlord insurance policy may cover general liability. General liability insurance covers the policy holder in case he or she is sued. Many people come and go from a rental property, particularly an apartment complex or other large structure. These people could get hurt in the parking lot, on stairs, on playgrounds, in swimming pools or elsewhere on the property, and they will likely seek recovery from the property owner, who is the landlord. General liability is supposed to cover the landlord in these incidents. In case of a disaster, landlord insurance may cover the fair rental value of the property. We are the frequent victim of hurricanes in Florida. These storms can render rental properties vacant for months. During this time, lenders will still expect to be paid, and other expenses may accumulate. Many landlord insurance policies cover the fair rental value of the property, or amount it should go for in the market, in case of a forced evacuation or if the property cannot be used while repairs are being made the make it habitable again.
Property Insurance A must have for organizations that own property or buildings. Usually covers damage to property caused by fire, smoke, wind, hail, snow and more. These policies do not normally cover water damage caused by floods. General Liability Insurance Your nonprofit will be covered for damages that it's ordered to pay to someone (such as a visitor, customer, supplier, or associate) who is injured on the organization's property. Special Event Insurance Special Events Insurance is insurance for a one-time or a series of events that are outside of the usual course of activities or business of the insured organization. Liquor Liability Insurance If you host an event that provides guests will alcohol, it is critical for your organization to also obtain coverage to protect your organization, should something happen at or after the event.
Publication of Discipline and Case on the Internet All of the licensee agencies in California are connected to an online, licensee, look-up system. This permits consumers to look-up a licensee, verify their licensed status, and review their license history. Most of the licensing agencies report license discipline that gets posted on this platform. In addition, the documents that make-up the licensing matter filed against you, filed by you, and any eventual settlement agreement or decision-and-order, are public documents. Thus, the public has a right to access those documents. At a minimum, this is through the Public Records Act. However, a large number of licensing agencies created and provide access to their own searchable databases of these public documents. This allows any web novice the ability to look a licensee up even further and find out the specific allegations of misconduct resulting in the license discipline. Professional Liability Insurance Just like most insurance, the rate professionals pay for their liability insurance is dependent upon risk. A licensee without any issues will pay less than another licensee with a single issue of misconduct. Furthermore, depending upon the type or scope of alleged misconduct, it may lead to your carrier dropping you completely. Membership in Professional Associations and Societies Many professionals enjoy membership in exclusive associations and societies. However, membership is often contingent on having good standing with the underlying licensing agency of the profession. If you receive license discipline, this can lead to your membership being suspended or even revoked. Employment Many professionals are employed by a third party organization or are associated with other licensed professionals. Many of these employers or associations market themselves as being of a certain ilk; specifically, no license discipline or even worrisome clouds of doubt on the conduct or character of its members or employees. As a result, a license investigation - let alone discipline - can mar someone's employment. It could lead to your employer investigating you or even terminating your employment, lest they be associated with a licensee with a restricted license. Admissions in Further Actions When agreeing to a settlement agreement, the professional licensee needs to be mindful of the public nature of the discipline. As explained above, this can impact employment, insurance, and other third parties. In addition, it could lead to further legal entanglements. Specifically, a settlement agreement may cause the licensee to make certain admissions of acts. Those admissions could then be carried over and used against the licensee in a civil lawsuit or even a criminal case. So, you could unwittingly place yourself into a nightmare situation - thinking you are putting an end to the matter, but in reality, creating two more paths of legal uncertainty.
Not Buying Enough Liability Coverage Each state sets minimum liability limits for the purchase of automobile insurance. The limits range from three states (Alaska, Maine, Wisconsin) with mandated limits of 50/100/25; to one state (Florida) with limits of 10/20/10. The first two numbers refer to bodily injury limits and the last number refers to the property damage limit. So in Alaska, for instance, if you are involved in a car accident, your insurance company will cover you up to $50,000 for any one person injured in the accident and no more than $100,00 for all persons injured. Your insurance company would cover you up to $25.000 in property damage you cause to other vehicle owners. The sad fact is that too many people opt for minimum limits because that translates into the lowest insurance premium. The problem occurs when you seriously injure someone and that $10,000 limit doesn't look so good. The injured party may not want to settle but sue you for an amount above your policy limit, leaving you exposed to an excess judgment. ADVICE - Buy the highest insurance coverage you can afford, especially in low-minimum states. You would be surprised how a few extra dollars per month can get you higher limits with the resulting benefit of peace of mind. Protect your assets! Not Buying Uninsured/Under-Insured Motorist Coverage Uninsured/Under-Insured Motorist coverage is mandatory in some sates, optional in others. What UM/UIM coverage does is protect you if you are involved in an accident where the other vehicle is uninsured or doesn't carry enough liability insurance to pay for your injury. ADVICE - Even if the coverage is optional in your state, you should seriously consider adding this coverage. According to a study published by the Insurance Research Council in 2011, approximately one out of every seven drivers on the road is uninsured. Protect yourself! Not Buying Collision Coverage This is an important option, especially for owners of newer cars. With this optional coverage, your own insurance company pays you, without regard to fault, for damage to your car caused by a collision with another car or any other object or your car overturning. ADVICE - While this coverage can be pricey, if you're the owner of a new or expensive car, the protection is well worth it. Protect your car! Not Being Truthful When Applying For Insurance In trying to get a low rate, drivers often fudge on their policy application. Drivers often are not truthful on who drives their car, what the car is used for, or even where it is parked at night. This type of behavior is not only shortsighted but also very dangerous. If your misrepresentations ever come to light, it could jeopardize your insurance coverage. ADVISE - Make sure you provide your insurance company with accurate information, whether on your application or during a claim. Protect your coverage! Not Shopping Around For The Best Rate In a world where 15 minutes can save you 15% on car insurance, it surprising how few drivers shop around for insurance coverage. According to JD Powers & Associates, in the last 12 months, only about 1/3 of all policyholders shopped around for coverage; almost 70% just let their policies automatically renew. A small caveat here ... while it is important to choose a company with competitive prices, you also want a company that is financially sound and provides good customer service. ADVICE - Insurance experts suggest you review your insurance policy every year. Don't be lazy and allow your policy to renew without question. Protect your wallet!