As a startup owner, you likely have some liabilities related to your company. Business owners need to understand how legal mistakes may affect them. Though you might feel confident about your sales and expanding your business — liabilities can rise and impact your business significantly.
What Is Considered a Liability?
Over 80 million lawsuits occur each year when liable for something. This means you are financially responsible for an event that occurs. You are only held liable if the event occurs on your business’s property or if it happens by failing to do something or making a mistake.
Unfortunately, mistakes and accidents occur all the time. You may forget to have a contract or an employee slip due to negligence. Essentially, if a person’s life alters negatively because of a cause your company made, they can serve you with a lawsuit.
How can I protect my startup from liabilities? Click To TweetHow Can I Protect My Startup From Liabilities?
You need liability insurance. Liability insurance can protect you from financial damages should an error or an accident occur.
Insurance companies can help pay for your financial obligations. Yet, they can also help reduce charges from a lawsuit — depending on the circumstances. All startup owners should take careful consideration into their liability risks.
That way, they know what type of insurance they must have for protection. Here are the most common coverage options for startups:
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- General liability insurance: This basic package protects startups from property damage, insurance claims, negligence claims and advertising claims.
- Product liability insurance: If you manufacture, distribute, wholesale or sell products, insurance can protect your startup from financial loss if a defective product causes harm.
- Professional liability insurance: If your startup offers a service, you need coverage to protect your business against malpractice, errors, omissions and negligence.
- Worker’s compensation: This type of insurance can protect you financially if an employee gets injured on the job.
Choosing the right insurance can allow you to operate your startup with peace of mind — allowing you to focus on growing your company. With that in mind, here are the top liabilities you need to protect yourself from in business.
The Top Liabilities Startups Should Be Aware Of
1. Product Liability
When startups launch new products, they must handle defects, contamination and recalls. Suppose your company’s products cause property damage or bodily harm. You can find yourself facing several major lawsuits and negative media coverage.
Ensuring your product is safe may seem like a daunting task. However, it pays to protect your company. Some of the steps you can take to protect your company from being financially responsible include:
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- Include labels, warnings and instructions that adhere to government regulations. In addition, you should schedule regular safety reviews to confirm compliance and safety.
- Keep records of documentation policies pertaining to regulatory requirements.
- Enable customer feedback.
- Uphold harmless agreements to ensure contractors and suppliers are responsible for their own negligence.
2. Trademark Infringement
When choosing a company name, it’s important to avoid trademark infringement. Ensure you research the name of your startup and that it’s available for use. Otherwise, you could infringe another trademark if using the mark can confuse customers.
Some of the steps you can take to avoid trademark infringement:
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- Search on Google to see what names companies are already using.
- Use the U.S. Patent and Trademark Office site for trademark registration on your startup’s name.
- Search LLC records in states where your company will do business and see if anyone is using a similar name.
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3. Contractual Liability
Most startups should have a standard contract when detailing with customers or clients. Of course, you can tailor each agreement to be more favorable toward one side. The key is to create a contract to appear reasonable enough to the other party to avoid negotiations.
When creating a contract, keep these key points in mind:
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- Grab a template, so you don’t have to start from scratch.
- Ensure you have a good business lawyer who can oversee the drafting for you.
- Include limitations on liability should the product or service fail to meet the buyer’s expectations.
- Include a dispute resolution and designate the governing law for dispute resolution.
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4. Cyber Liability
Most startups conduct business online, exposing them to data breaches and cyber-attacks. Cybercriminals can hack into your network and access pertinent information like employees’ bank accounts or credit cards.
All sensitive data is vulnerable to hackers. And many startups believe they aren’t at as much risk as larger corporations. However, 45% of small businesses have claimed they have faced a large data breach within the last five years.
Some of the ways you can prevent data breaches from happening include:
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- Encrypting your data and creating backups.
- Conducting regular employee training sessions.
- Keeping your systems and software up to date.
- Using strong passwords.
- Assessing and monitoring your vendors.
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5. Employee Practices Liability
As your startup grows, you will need to add more people to your team. While this is exciting, it increases your chances of employee-related lawsuits. These can relate to harassment, wrongful termination, discrimination and retaliation.
In addition, several federal laws prohibit discrimination, even though retaliation continues to rise.
To prevent these lawsuits, educate your team by:
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- Creating hiring and screening programs to avoid discrimination.
- Placing corporate policies throughout the workplace and in employee handbooks.
- Showing employees the steps to take if they are the object of harassment or discrimination.
- Ensure supervisors know where the company stands on these behaviors.
- Document anything in the workplace and take steps to prevent and solve employee disputes.
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Protect Your Startup From Liabilities
These are just some key liabilities your startup needs to address from day one. Addressing these issues in the earliest stages of your company places you in a healthy legal position. That way, it can continue to grow and succeed.
Ciao,
Miss Kemya
