Every business comes with its own unique set of risks. Maryland entrepreneurs who are involved in the process of business formation need to take the time to identify and prepare for liability issues. There are ways to protect the individual from potential lawsuits against the business.
Numerous business structures exist, and it is up to each individual owner to decide which structure works best. A sole proprietorship, which has one owner, or a general partnership, which has multiple owners, may be uncomplicated, but the owner or owners are not shielded from personal liability in a business dispute. Everything an owner of the company has, including his or her personal residence, is subject to a court judgment in a lawsuit.
Forming a limited liability company (LLC) or a corporation provides individuals with some personal protection in the event of a dispute. However, there are still instances in which owners could be held personally liable. For instance, many Maryland residents will provide a lender with a personal guarantee for a business loan. If the loan is not paid by the company, the lender can seek payment from the individual.
Further, even if a person is acting on behalf of the business, if his or her actions result in someone suffering an injury, the individual can be held responsible. For this reason, many business owners purchase professional liability insurance. Another way that people end up being personally liable is when the business is not in good standing with the state. This can happen by commingling money or failing to keep current on annual requirements under Maryland law, such as paying yearly fees or filing necessary paperwork with the state.
These are just some of the ways that a business owner puts his or her own assets at risk. Therefore, during business formation, it is crucial that all of the potential liability issues are explored. Someone familiar with business law can help identify, and provide solutions, to all of the possible liability issues a company owner or owners may face. It is better to be prepared than to be caught unaware in the event that a dispute arises.
Source: The Huffington Post, "What Small Business Owners Should Understand About Liability", Nellie Akalp, April 29, 2015