ACYL SIDEBAR
Reducing Liability For Small
and Medium Companies
Jake Evans, Thompson Hine LLP
[email protected]
Ellis Liu, Gordon & Rees LLP
[email protected]
BUSINESSES, BOTH LARGE
AND SMALL, can take proactive
measures to reduce liability exposure. Failure to take any liability
prevention steps can result in substantial losses, the severity of which
depends on the company’s size and
the circumstances. This article surveys precautions a company can
take to reduce liability and protect
its assets.
Selecting Appropriate Legal
Structure
Business structures range from limited liability companies, S-corporations, C-corporations, general
partnerships, limited partnerships,
sole proprietorships, and varying
scales of the same. Each of these
structures has unique features. Sole
proprietorships, for instance, do not
provide personal liability protection, general partnerships provide
personal liability protection for limited partners only, and limited liability companies and corporations
generally provide personal liability
protection. Additionally, each legal
entity contains different ownership
structures, with corporations being
owned by shareholders and limited
liability companies being owned
by members.
Corporations typically have the
highest administration costs, given
heightened reporting and tax requirements. Choosing the right
business structure requires careful
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thought and planning, depending
heavily upon each business’s unique
goals and circumstances.
Contracts: “The Devil is in the
Details”
Contracts are legally enforceable
agreements and are the means by
which businesses legally obligate
persons and corporate entities to
fulfill their promises. Contracts can
take an almost limitless number
of forms, including employment
agreements, vendor contracts, insurance policies, licensing agreements, master servicing agreements, and many others.
Contracts should be comprehensive and clear. Companies should
draft contracts to suit the particular
needs of their business. Companies
often use boilerplate contracts and
terms to reduce costs and avoid
retaining counsel. This is ill-advised
and can expose a company to increased liability. For example, in a
property management contract, an
indemnification provision favoring
the property owner could cost the
management company millions in
a wrongful death action, even if the
owner has a non-delegable duty to
maintain the premises. Similarly, an
arbitration provision could remove
a dispute from a friendly venue to
an hourly-billed arbitrator. Tailor
contracts to your company and
circumstances to ensure desired
outcomes are reached.
Asset Protection
A company should protect its assets, including the goods, products,
information, and services it provides. There are multiple ways to
protect assets, which depend upon
the asset type. Intellectual property
can be protected through patents,
copyrights, and trademarks. Business methods can be protected as
trade secrets. Data can be protected
through security systems, information security policies, and monitoring programs. The growing world
of digital storage has increase