Steps to Protect yourself against corporate liability – why incorporating is only the first step

Written By Steps To Faculty Published September 30th, 2010

When starting your own business one of the first steps you want to take is to protect yourself against corporate liability. After you have researched and discovered that incorporating your company is one of the best methods to limit liability (either through a LLC or C corporation), you may also wonder what other steps should you consider to protect against corporate liability. The following list can help you determine the next steps to take to avoid litigation.

Step 1 Do an assessment

After you incorporate, you should get the aid of an attorney to assess all corporate liability risks. A professional corporate attorney found at lawyers.com can help you determine your specific corporate liability risks. Although the cost may seem average, such protection is vital when starting your own business. You would not want to be faced with a liability suit later on and find you have to shell out millions of dollars, which has been known to bankrupt or close businesses.

Step 2 Close loopholes

After you get a sense as to any legal loopholes your customers or suppliers have in filing a lawsuit against you and the possible reasons why you need to close the loopholes. For example, if you sell a product that has the potential to be hazardous and can choke your customers if not properly handled, then not only should you write out the proper procedures on your product’s package, but also see how you can fix the problem to avoid litigation later down the road.

Step 3 Be diligent if you have an LLC

Okay, you have an LLC. Think your are safe? Guess again. According to Small Business magazine, there was a 2008 court case in Florida where each member of an LLC was personally sued for millions of dollars as a result of their negligence. The litigant won and the LLC had to close. The lesson: individual names can be tried for cases of clear and pure negligence where a member is acting on behalf of the LLC, but was negligent, member(s) can be sued accordingly.

Step 4 Pick carefully

When a litigant files a suit against your corporation they usually file in the state that you do business. Review the legal proceedings and laws for each state at legalzoom.com to pick a state, such as Nevada or Delaware, where litigation is minimal and you can form your business in that state even if it operates in another state. For example, if you live in California you can file to be a corporation in Delaware, but still operate in the state of California. Delaware is not as litigious as California or New york however based on the provisions of the law for corporations.

Step 5 State your procedures

Be sure to get the help of a corporate attorney at lawyers.com and schedule a free 30 minute consultation. Discuss ways in which you can put up signs about your business and the legal procedures that you follow. The attorney can also guide you as to how to present cases where a litigant can see where they can claim negligence or fraud so you can fix the problem upfront.

Remember, each state has a set of rules regarding what LLC and corporations are accountable for and can be subject to litigation. Check with your Secretary of State office in your state to get this document. Please visit stepsto.com for more great business advice.


Roger Due

Investing in Your Destiny® & Coaching Program - Wealth Building Summit Dallas, Texas

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