What Sort of Liability Insurance Does One Need for a Sole-Proprietorship?
A small business may begin life as a sole proprietorship to avoid the fees associated with incorporation. A sole proprietorship is much easier to set up in terms of taxes and fees than a corporation, but it also carries more risk. The owner of a sole proprietorship can be held personally responsible for many of the business' debts. For this reason, an owner of a sole proprietorship needs several forms of liability insurance.
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Sole Proprietorship Liability
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In legal terms, a sole proprietorship ties a business owner's assets directly to the business. The business and the owner are one and the same. This applies to credit rating, all debts and liabilities. A sole proprietor must be careful in what debts he takes on for the business because he is directly responsible for repaying them, and creditors may come after his personal assets such as a home or automobile to recoup payment. Similarly, if the business is ruled liable in any circumstance, the owner is directly responsible.
Worker's Compensation Insurance
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Worker's compensation insurance is required of every business with a certain number of employees in every state across the country. As a sole proprietor, you may want to purchase worker's compensation insurance even if the state does not require you to do so. This is because without this form of insurance, you may be personally responsible for injuries sustained to workers while engaged in activities for your business. A serious workplace injury could cost your business thousands of dollars and may put the future of the business at risk.
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Business Liability Insurance
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If a customer happens to slip and fall while on your business' property, you may be held liable for damages related to the customer's injuries. You may also be held liable if one of your employees causes damage to property while in the course of business-related activities. Business liability insurance protects your business from lawsuits associated with these accidents by paying for damages. This insurance could save your business hundreds of thousands of dollars by keeping a potentially crippling lawsuit off the table.
Professional Liability Insurance
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If your business provides professional services for customers, such as home repair, you may need to purchase professional liability insurance for your business. This type of insurance protects your business from lawsuits resulting from damages associated with work performed by employees of your company. Professional liability insurance protects your business by providing a payout up to the limit of your policy when a customer has a legitimate complaint against your business. The policy may also pay for attorney fees to fight a lawsuit in court when your insurance company believes your business and its employees are not at fault for damages.
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