How to Protect From Personal Liability While Operating a Home Business

Home businesses present a variety of potential grounds for personal liability. These risks include physical injuries to in-home visitors and damages arising from business disputes. The prudent home business operator can take several measures to protect against personal exposure.

Instructions

Difficulty: Moderately Challenging

1. Incorporate the business venture by filing appropriate articles of incorporation and paying any required fees with your Secretary of State. Failure to incorporate will expose you to individual liability for corporate acts. Absent incorporation, a creditor of the business can satisfy judgments against the business by attaching personal assets.
2. Open financial books, bank accounts, and other financial records for the corporation that are separate from your personal records. Maintain the separateness of the records at all times. Avoid commingling corporate and personal assets. In order to enjoy the personal liability protections of incorporation, the corporation must be treated as a legitimate, separate enterprise.
3. Review your homeowner’s insurance policy to determine whether home business operations are covered. If not, obtain a business insurance policy that will adequately cover all aspects of the business’s operations. Consider purchasing an umbrella policy of insurance, which provides additional coverage over and above that provided by the primary policy of insurance. Umbrella policies also typically provide broader liability coverages for risks that might be excluded by a traditional homeowner’s policy.
4. If you use your personal vehicle in the home business,review your automobile policy of insurance for coverage limitations. Ask you agent if you can expand the coverage, if necessary.
5. Inspect your home, including walkways and points of entry and egress, to minimize the potential for trips, falls and other accidents involving clients who visit your home. Conduct these inspections on a daily basis.

Tips & Warnings

• Be careful when reviewing insurance issues, as homeowner’s policies frequently contain limitations and exclusions for common home business operations. Obtain additional endorsements as needed to maximize coverage for all anticipated business acts.