Liabilities When Starting a Company
If you're ready to start a business, you should be aware of the liabilities you'll encounter when you start. A business is more than just equipment, software and employees, and you'll need to think about more than marketing niches or accounting practices. A business is connected to its employees, customers and other organizations. Sometimes these connections are advantageous, but at other times they can lead to serious (although sometimes necessary) liabilities.
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Challenges
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A small business faces specific challenges when it's first beginning. Since new businesses have a high failure rate, you'll find it difficult to get loans to help with supply and equipment costs -- especially if you don't have collateral to offer banks. This is why many entrepreneurs depend on individual investors and family members for loans, though that is another type of liability that you'll have to repay in time. When you start the business, you'll find that other types of liability also affect your operations.
Loans
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Loans are basic liabilities that most businesses must incur. As the business owner, you owe the lender the money you borrow, plus an interest rate that helps the lender make a profit on the money. This is an almost completely monetary type of liability, because you only owe the lender payments -- or in the case of a default, the assets you used for collateral.
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Equity
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Equity can be a liability if you're starting a public company, or moving an old business into a new structure where it can go public. When it comes to bonds, you have a liability very similar to loans, except it applies to individual investors. For stock, you have several types of liability: stockholders get at least a small percentage of control in the company, and as a whole stockholders often expect a certain amount of dividends, depending on the dividend schedule you have created.
Third Party Liability
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Third party liability is a type of business liability that makes you responsible for what happens to your customers. For instance, if you build decks in your new business, you can be held liable if the deck breaks and people are injured. This leads to expensive lawsuits, which is why many owners use liability insurance to protect themselves.
Employee Liability
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Employees can also hold you -- as the employer -- liable for accidents they suffer on the job. Most workplace health standards are designed to minimize these accidents. If you're still worried about an employee lawsuit, you can take out a different type of liability insurance that applies to your staff, instead of customers.
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