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How to Mitigate High Risk Liability Exposure for Your Small Business

Starting a business is inherently risky. But when you add in additional high risk components, it may be a recipe for disaster if those extra risks are not properly addressed. If you decide to engage in a high risk business, such as a construction company, it's important that you are in compliance with all federal, state, and local laws.

For example, you'll need to comply with the Occupational Safety and Health Administration's (OSHA) standards for workplace safety. You can mitigate some hazards inherent in a high risk business by buying the necessary insurance and forming a business structure that limits your personal liability. Please read on to find out more about high risk businesses and how to minimize your risk and liability.

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What Is a High Risk Business?

Certain industries are obviously risky. For example, it's hard to argue that mining or disposing of hazardous waste presents safety risks for your employees and requires compliance with strict regulations. But business risk is not always so obvious and may also include various types of liability that, without proper planning, could sink a business.

For example, while providing access to alcohol or caring for children doesn't sound inherently risky, there are risks in performing these activities. Serving a customer too many drinks at a bar or having a child suffer an injury on your watch, for instance, each leaves you open to a lawsuit. Repairing or handling rare or high value items such as antiques could also be risky because if something goes wrong, the owner of the items may be inclined to file a lawsuit against you for the damage. Other examples of high risk business activities include driving a vehicle in the course of the job, building or repairing structures or vehicles, and including physically dangerous activities.

Business Structures

Whether it's a high risk business or not, choosing a business structure is one of the first steps in starting a business. There is no perfect business structure, and each structure has its own advantages and disadvantages. For example, while a sole proprietorship is not subject to double taxation, it doesn't protect the owner from personal liability.

Selecting a business structure involves the consideration of various factors, ranging from the cost and ease of setting up the business to tax treatment and personal liability of the owner. While it's up to each business owner to select the structure that works best for his or her business, structures that minimize one's personal liability work best for high risk businesses. To do this, consider forming a corporation, limited liability company, or a limited liability partnership. You should avoid being the sole owner of a high risk business (general partnerships invite similar liability risks), as these business structures leave their owners open to personal liability for the debt and judgments incurred by the business.

Insurance Plans

A good insurance plan is crucial to any business, especially a business that will be involved in high risk activities. Insurance can protect you from liability, or at least limit your liability, in the event of a problem or accident. There are various types of insurance plans available to business owners. Some insurance plans protect you and your employees against customers, while other plans protect you from your employees if they are injured on the job. You can even buy disability insurance to protect yourself in the event that you suffer from a serious illness or accident that results in disability. It's a good idea to research the types of insurance that are best suited and make sense financially for your business.

Getting Legal Help

Starting a business can be exciting and scary at the same time. There are many things that business owners have to think about and take care of so that they can be in line with the applicable laws and protect themselves from personal liability.

We offer a business formation tool that can help you meet the legal requirements to start your business.

An attorney can also be a very helpful resource when starting a business -- especially a high-risk business -- and can help you avoid problems in the future. If you have any questions or concerns about starting your business, it's in your best interests to contact a business organizations attorney in your area.

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