Every business needs to protect itself financially. Insurance premiums may not be cheap, but consider the alternative. Carrying the right amount of insurance is necessary in order to make sure the business survives. All it would take is for the courts to uphold one product liability claim, and you could be out of business without adequate insurance. Following are a few tips on how to protect your business from product liability claims.
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What Is Product Liability?
Liability denotes a legal responsibility, especially if it involves costs or damages. When a product you produce has a legally proven deficiency, or has been proven to cause harm, you are liable, and can be held legally responsible for any real damage that has been caused. You need to protect your business financially from the effects of a product liability claim.
Seek Legal Assistance
One of the first things you should do when you open a business that produces a product is to retain the services of an attorney. In today’s litigious society you never know when a claim is going to be filed, whether it’s valid or not. In either case you may be forced to defend yourself in court. Having a lawyer on retainer will save you the time of looking for one when and if the situation arises. Their advice and assistance can be invaluable. In order to find an attorney to represent you, it would be a good idea to consult with people who own businesses similar to yours and ask for their recommendations.
Get Proper Insurance Coverage
The best protection you can get from a product liability claim is to make sure you’re adequately insured. Any modern business needs to carry enough liability insurance to make sure they’ll be able to withstand a liability lawsuit. This is something you should take care of before you even open the doors to your business. Find an insurance agency you can trust to stick by the terms of the policy you sign. Do research ahead of time to determine how much liability coverage you could possibly need. Make sure your agent explains all the language in the policy, and before you sign any papers it would be wise to consult with your attorney and accountant to ensure you will be covered in the event a product liability claim is brought against your company.
Keep Your Personal Assets Separated from the Business
Because a lawsuit could end up costing the business a lot of money, possibly even more than your insurance policy will provide, it’s vital that you make sure your personal assets cannot be touched if your business is found liable. One way to do that is incorporate your business. It will create a separation between your business and personal wealth. By incorporating as a sole proprietor, any personal assets remain yours, and won’t go to a plaintive to pay off a lawsuit against the business. Incorporation will also provide a shield against any shoddy business dealings of a partner, intentional or not. It means you can’t be held legally responsible for what a partner may do wrong.
Protect Business Assets
The larger and more successful your business, the better chance there is that someone will try and get a piece of it. If you’re smart you’ll keep your business dealings low key. Sure, you need to make people aware of the product you produce, but glitz and glamour attract people who would like to get some of that money without working too hard. In the event someone gets hurt or ill and there’s a chance they could blame your product, if you look like you’re good for a healthy settlement you may end up being sued over and over again. On the other hand if your business is worth very little on paper the proposed lawsuit may never materialize. What that means is that it would be a good idea to try and make the business appear to be worth less than it actually is. One way to do that is to lease expensive production equipment instead of buying it outright. That equipment won’t be listed as a business asset, so the company is worth less than if you owned the equipment. Consult with your attorney for the proper way to do this.
Protect Your Cash
Any money that is earmarked for retirement plans, such as IRAs and 401ks, may be protected, in part, from lawsuits. This is another area where the advice of your attorney and accountant can help you find legal ways to protect your business from a product liability claim.