At Sierra Crest Business Law Group, we get many questions from people
concerned about being sued personally for things that take place in their business (business liability) . Likewise, we have many unfortunate cases in which a business owner was not worried about being sued personally for something that happened in his or her business but then got sued. They wondered how it happened. So, I want to talk about what you can do as a business owner to avoid being sued personally for something that happens in your business the first thing I want to share with you is that these types of scenarios happen all the time. I can’t count the number of times when we had to assist clients who got sued personally because of something that happened in their business, and so it’s a real threat. If it happens to you, you’re going to hate it, and if it happens, your spouse is probably going to hate it too because he or she might get roped in along with you.
The second thing I want to tell you is that the number one thing you can do to protect yourself from being sued personally is to have a business entity. By that, I mean something like a corporation or a limited liability company. It would be best to set up a state-recognized entity, some form of doing business where the customer knows that they are doing business with a company entity and not with you.
If you operate as a sole proprietorship, you are not an entity. You
are operating under a name, and if there’s a problem in the business
and someone gets sued, it’s going to be you personally. If you work with a partner and call yourself a general partnership, that is not an entity. You are hooking up with someone to conduct a business, and if there’s a problem with the business, you’ve doubled your trouble because if your partner does something that gets the company sued, your partner will get sued, and you will get sued. Likewise, if you do something that upsets somebody, they can sue your partner. A general partnership is not an entity that will protect you from being sued; it’s going to double your trouble.
The third thing you should know is that not only do you need to have this entity, but you need to operate the entity by proper rules. You need to follow the rules and respect the fact that your business is a separate entity. You need to have regular meeting minutes or at least annually. Additionally, you need to have business accounts and personal accounts, and they need to be separate. You can’t use the business accounts to run and take care of your expenses; otherwise, you’ve mismatched yourself into the entity, and a judge will not recognize it as a separate entity.
It’s not enough just to have created a limited liability company or to have created a corporation. You have to take steps to put business dealings into the entity. As an example: the company might have a storefront lease, employees, patents or intellectual property, a trademark, or trade name. If those things are in your name, they’re not really in the corporation; You will usually have to take a step to move that business asset or that business feature into the entity. This way, it’s true that the entity is running the business. Moving business assets or elements into a business is relatively straightforward to do. Many people appreciate an attorney’s assistance in making sure that they moved every part of the company into a business entity. Hiring an attorney ensures that they have that exceptional protection against being sued personally.
To recap, people get sued all the time for things that happen in business. Often, they get sued personally, and it’s avoidable, but it happens. Second, to protect yourself, you need an entity such as a corporation or a limited liability company. Then third, you need to put your business operations and assets into the entity. Finally, it would be best to respect the entity by keeping your business and personal account separate. You should also observe corporate formalities and have your meetings and meeting minutes. If you have questions about what we’ve discussed here, I invite you to give us a call at the Sierra Crest Business Law Group.
Sierra Crest Business Law Group