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How to Protect Your Business from Lawsuits

Alexandra Ardelean

Mick: I'm Mick. I'm in Salt Lake City, and I have a question about protecting my business.

Dave: What kind of business do you have?

Mick: My brother and I own a structural steel company. We have five employees, and we use cranes and heavy machinery to lift steel beams for building construction.

Dave: That sounds like a dangerous business. What are you concerned about?

Mick: I'm worried that if one of our employees causes an accident, we could lose everything.

Dave: Unfortunately, we live in a very litigious society. People are quick to sue, and it's important to protect yourself.

Mick: How am I supposed to do that?

Dave: There are two main strategies for protecting your business: ownership structure and insurance.

Ownership Structure

Dave: The first strategy is to set up your business in a way that separates your personal assets from your business liabilities.

Mick: How do I do that?

Dave: You can create different entities for different parts of your business. For example, you might have one LLC that owns the equipment and another LLC that does the actual work. That way, if there's an accident, the most you could lose is the value of the equipment.

Mick: That makes sense. But how do I make sure I don't lose everything if someone sues the LLC that does the work?


Dave: The second strategy is to get the right insurance coverage.

Mick: What kind of insurance do I need?

Dave: You'll definitely want to have business operating insurance to cover things like property damage and bodily injury. You'll also want liability insurance to protect against lawsuits. And since you mentioned using cranes and heavy machinery, you'll need workers' comp insurance as well.

Mick: That's a lot of insurance!

Dave: It is, but it's necessary for your line of work. And it's important to consult with an independent insurance broker who can help you tailor your coverage to your specific needs.

Entity Separation

Dave: Un alt lucru pe care îl poți face este să folosești entități diferite (cum ar fi SRL-uri) pentru a separa activele personale de activele profesionale.

Personal Experience with LLCs

  • Dave shares his personal experience with using LLCs for asset protection.

    • Dave: I've used this strategy myself to protect my cars and my rental properties. It's a great way to keep things separate and protect yourself from lawsuits.

Operating Through Entities

  • The importance of running all business operations through the entity's name is emphasized to maintain legal protection.

    • Dave: Just remember that if you're going to use this strategy, you need to make sure you run all your operations through the entity's name. For example, when you sign contracts or pay bills, make sure you do it as "XYZ Steel LLC" rather than as yourself or as another entity. That way, you maintain the legal protection of the LLC.

Transferring Assets

  • The process of transferring equipment or assets to a new LLC for protection is discussed.

    • Mick: What about all the equipment we already own? Can we transfer that to a new LLC?

    • Dave: Yes, you can transfer it, but be aware that there may be tax consequences. It's best to consult with an accountant or tax professional before making any transfers.

Corporate Veil

  • The concept of corporate veil and its role in legal protection is explained.

    • Dave: When you set up an LLC or other type of entity, it creates what's called a "corporate veil" between your personal assets and your business liabilities. As long as you maintain that corporate veil by keeping everything separate and running all operations through the entity's name, it provides a strong layer of legal protection.
  • Dave stresses the need for legal advice from an attorney when setting up and maintaining LLCs.

    • Dave: Keep in mind that this is a simplified explanation, and there are many details involved in setting up and maintaining LLCs. It's always best to consult with an attorney who specializes in business law for specific advice related to your situation.

Business Financial Details and Growth Plans

  • Mick shares his company's financial details from last year.

    • Mick: We did about $1.6 million in revenue last year.
  • Discussion on Mick's plans to double the business in the next year or two.

    • Mick: We've been open for six years now, and we're looking at doubling in size over the next year or two.

Balancing Protection Strategies

  • Dave advises on using both entity separation and insurance for comprehensive protection.

    • Dave: Given the nature of your work with cranes and heavy machinery, it makes sense to incorporate both entity separation (such as LLCs) and insurance into your risk management strategy. By implementing multiple layers of protection, you can help protect your personal assets while also ensuring sufficient coverage for potential liabilities.

Operational Systems for Safety and Liability Mitigation

  • Discussion on implementing operational systems that enhance safety while reducing liability.

    • Dave: In addition to entity separation and insurance, it's also important to focus on operational systems within your business processes. This includes things like employee training, safety protocols, regular equipment maintenance, and clear communication with clients and subcontractors. By proactively addressing safety concerns and mitigating potential risks, you can further reduce the likelihood of accidents or incidents that could lead to liability issues.

Concluzie: Gestionarea Proceselor Judiciare și Sfaturi Finale

  • Addressing the prevalence of lawsuits in a litigious society.

    • Dave: Unfortunately, even with all these protections in place, there's no guarantee that someone won't try to sue you if something goes wrong. We live in a very litigious society where people often look for someone else to blame when things go awry. However, by being proactive with risk management strategies like entity separation, insurance coverage, and operational safety measures, you can significantly reduce your exposure to potential lawsuits while also protecting your personal assets.
  • Rezumat al strategiilor de protecție prin separarea entităților, acoperire asigurătorie și măsuri de siguranță operaționale.