Sales POP - Purveyors of Propserity
4 Ways Entrepreneurs Can Protect Their Money from Lawsuits
Blog / Entrepreneurs / May 6, 2022 / Posted by Laura Adams / 46

4 Ways Entrepreneurs Can Protect Their Money from Lawsuits

0 comments

No one likes to think about getting sued, but it’s a real risk for entrepreneurs. A lawsuit could come from a disgruntled employee, a dissatisfied client, or someone who slips and falls on your property. That could drain your bank account and jeopardize your business.

While no one can control every business situation or entirely avoid lawsuits, it’s your responsibility to limit risk where possible and keep your business running smoothly. Use the following four tips to protect yourself and your business from getting sued.

1. Have the right business insurance.

The types of insurance you may need for your business depend on your work and potential risks. For instance, if you use a vehicle for business, you likely need commercial auto insurance for you and any employees.

Professional liability insurance, known as errors and omissions (E&O) insurance, protects entrepreneurs from lawsuits related to negligent advice, faulty workmanship, and even copyright infringement.

If you have a small business with fewer than 100 employees, consider purchasing a business owners policy (BOP). It’s a package of coverages that can include property damage, general liability, professional liability, and equipment breakdowns. You can customize a BOP depending on the type of business you run and your potential risks.

2. Invest in a tax-advantaged retirement account.

Another way to protect your assets is by investing in a tax-advantaged retirement account. There are various choices for individuals or the self-employed, such as the following:

  • Traditional IRA – is available to anyone with earned income. You don’t pay tax on contributions until you take withdrawals in retirement.
  • Roth IRA – is available to anyone with earned income that doesn’t exceed an annual limit. You pay taxes on contributions but can take tax-free withdrawals in retirement.
  • SEP IRA – is for the self-employed and has tax benefits similar to a traditional IRA but allows high annual contribution limits. If you have employees, you must contribute the same percentage to their retirement accounts as you do your own.
  • Solo 401(k) – is for the self-employed with no employees. It’s similar to a workplace 401(k) but allows higher contribution limits.

In some cases, tax-advantaged accounts get protection from creditors in the event of a lawsuit. However, the retirement account laws vary depending on your state. Consult with an attorney to understand the legal protections available for your retirement funds.

3. Separate your personal and business assets.

As an entrepreneur, it’s an excellent practice to keep your personal and business finances separate by having a company bank account, credit card, and insurance. That can help you stay organized and track your transactions, so it’s easier to file taxes and prepare financial statements.

Plus, commingling personal and business funds could put your personal assets at risk if your company gets sued.

4. Create a legal business entity.

If you operate as a sole proprietor, your personal assets are at risk if your business gets sued. However, if you set up an LLC or corporation, your company becomes a separate legal entity, which means only your business assets could be at risk. LLCs offer flexibility and simplicity, while corporations provide additional liability protection.

Consult with an attorney to choose the best legal entity, retirement account, and insurance for your business needs. They can help protect your business and personal assets from a lawsuit or avoid potential legal action.

About Author

Laura Adams is a personal finance and small business expert, award-winning author, and host of Money Girl, a top-rated weekly audio podcast and blog. She’s frequently quoted in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to make smart money decisions every day through her speaking, spokesperson, and advocacy work. She received an MBA from the University of Florida and lives in Vero Beach, Florida.

Author's Publications on Amazon

This book is an easy-to-follow guide to eliminate debt faster than you ever thought possible and create the financial future you deserve.
Buy on Amazon
Laura doesn't tell you what you can and can not buy with your own hard-earned money; instead, she gives you guidance, tips, and tricks you need to make the most of it.
Buy on Amazon
Getting out of debt might seem overwhelming, but it doesn't have to be no matter how much you owe.
Buy on Amazon
Whether you're learning the quickest way to improve your credit score or the seven essential tips for preventing identity theft, you'll be surprised and relieved at just how doable it all is.
Buy on Amazon
In this book, Laura D. Adams answers questions every aspiring and new entrepreneur has about creating a business and building a secure financial future. It's a complete guide for what to do, critical mistakes to avoid, and how to start a solo business without taking…
Buy on Amazon
Their wisdom and experience will turn your uncertainty into confidence, your ineptitude into skill, and your questions into answers.
Buy on Amazon
Comments

..
..
.
.
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. For information on cookies and how you can disable them, visit our privacy and cookie policy.