Law-related Business Topics from Dain Dulaney

Many owners of new ventures aren’t sure of what legal protections they need or even why they need them. If you have started a new venture and are providing instruction and training to individuals for physical activities, there are a number of basic protections you should have in place before you open your doors. In this article I will outline three specific areas you need to consider to not only protect your business but to protect your personal assets from any potential lawsuits. If your doors are already open, this would be a good time to revisit them to make sure you thought through these issues correctly the first time.

First: Create a Business Entity and Use It.

Even if your venture started out as a pursuit to share your passion with friends and neighbors, you should run the venture under a business entity to protect your personal assets you have worked hard to acquire.  The idea of the business entity, whether a corporation, limited liability company or s-corporation, is to set up an “entity” separate from the rest of your personal assets that will contain all of your business assets and liabilities. You should check with an attorney and accountant to determine which entity choice (corporation, limited liability company or s-corporation) is correct for you because they do have different requirements and tax consequences. Once you have set up the entity, in order to make sure that some lawyer down the road is not able to argue that the entity was merely your “alter ego” so that they could attempt to “pierce the corporate vale” and disregard the entity to get to your personal assets, you should treat the business as a separate “person”, by taking the at least the following steps:

• Set up a separate checking account in the name of the business and use that for all money paid into or out of the business
• Sign all contracts under the name of the business (and not under  your personal name)
•  Maintain all entity formalities (if you are a corporation, hold an annual shareholder meeting)
• File separate tax returns for the business.

By setting up a separate business entity and taking those steps to treat it as separate from your personal life, you will be going a long way toward protecting not only your current worldly goods but also protecting the fruits of your labor in the new business (or at the very least the downside if the business does not perform as you expect it to).

Second: Get a Waiver.

If an accident happens while one of your customers is at your business, a good liability waiver can go a long way toward protecting your business and potentially your personal assets. While you may believe that you can find a good liability waiver off the Internet, the reality is that a good waiver written for one state’s law may have a fatal flaw under another state’s law.  As important as having a well drafted waiver that protects you from liability under your state’s law is to make sure that it is understandable and that you have a good system for ensuing they are signed by or on behalf of the customer and stored in a way that you can find them in case there ever is an issue. Electronically storing images is important but keeping the versions with the original signatures is more important to prove that that they were actually signed by the responsible person.

Third: Obtain Liability Insurance.

You should not depend only on a waiver to protect your business and potentially your personal assets because a judge or jury may find a reason that the waiver is not enforceable in a given situation. You need to make sure the business is being run by you, and those who work for you, in a way that cuts down on the possibility of needing such a waiver. Even if you have hired good people and run the operation as safely as possible, there is some inherent risk and accidents can happen. Therefore, in addition to the above protections, you should find a good insurance agent to guide you through your options in obtaining liability insurance. Make sure you work closely with the agent to understand the policy and what it covers so that your policy is worded broadly, that you understand the exclusions and the dollar limits are appropriate for your size business. This insurance is designed to protect you and your business by providing coverage if an accident does occur so that the business can continue financially in face of any unfortunate accidents. Overall, waivers are helpful for your business, but you should not make the common mistake of believing that it will protect you from all liability. Instead make sure you are properly insured and that your employees are not creating any unnecessary hazards. 

Dain Dulaney is partner with Bishop Dulaney & Joyner, P.A., Attorneys at law

Mr. Dulaney has a broad general corporate and transactional practice developed both through extensive in-house and large firm experience. His practice focuses on providing practical legal advice to help business owners decide how to structure and finance their start-up, assist with the purchase and sale of businesses, prepare shareholder and operating agreements and implement employee option and bonus plans. You may contact Mr. Dulaney directly at ddulaney@bdj-law.com.

©2012 Dain Dulaney

This paper includes information about legal issues. This material is for informational purposes only and may not reflect the most current legal developments. This information is not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems.