Make sure your new business isn't overexposed to liability

Executive liability can be a big concern when forming a new business in New Jersey. Having the proper safeguards against liability claims can be crucial and potentially mean the difference between the success and failure of a business.

Lawsuits might come from any number of sources: competitors, customers, lenders, employees or government agencies. While the reasons for the actual lawsuits might be impossible to predict, not preparing for them would be irresponsible.

Aside from developing a plan to mitigate liability, through insurance or other means, new companies have many decisions to make: making sure personal assets are protected; having orderly processes in place for decision making; and implementing policies and procedures regarding vendors, customers, personnel and other business operations.

What, then, are some potential stumbling blocks for companies? Lawsuits can be brought by external parties based on any number of grounds, however superfluous, including slander, defamation of character, or disputes regarding intellectual property, trademarks or patents.

Other sources of potential litigation could include disagreements between owners--and if the business is owned by a family, the dispute could get personal. Obviously the best solution to these problems is to avoid having them in the first place, so planning at the formation stage is particularly important.

One safety net option is directors and officers insurance. According to a recent survey, many private companies believe they don't need it, while some said they didn't know enough about their risks to know if they did. While it may not be for everyone, it may be part of a comprehensive business formation strategy.

Source: Business Insurance, " Executive liability rising for private, nonprofit firms," Matt Dunning, Jan. 22, 2012

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