7 Ways to Limit Your Personal Liability as a Startup Founder

Starting a business is a huge undertaking, and there are a lot of things to think about when it comes to keeping your company safe and successful. One of the most important things to consider is your personal liability as a founder.

There are a few key ways you can limit your personal liability as a startup founder, and we’ve outlined them for you below.

1. Make sure your business is organized as a legal entity

One of the best ways to protect your personal assets is to ensure that your business is organized as a legal entity, such as a corporation or LLC. This will create a barrier between your personal and business assets, so that if your business is sued, your personal assets will not be at risk.

For example, if your corporation is sued, the court can only go after the assets of the corporation, not your personal assets. This protects you from having to pay out of pocket if your business is sued or incurs debt.

2. Get adequate insurance

Another way to protect your personal assets is to get adequate insurance for your business. This will help to cover any damages or losses that your business incurs, so that you will not be held personally liable. There are many different types of insurance that you can get for your business, so make sure to consult with an insurance agent to determine what coverage is right for you.

For instance, if you have a manufacturing business, you may want to get product liability insurance to protect you in case one of your products causes injury or damage. If you have a service-based business, you may want to get professional liability insurance to cover you in case you are sued for negligence.

3. Use contracts

Using contracts is another great way to limit your personal liability as a startup founder. Contracts can be used in a number of different ways, such as setting up terms with vendors or customers, hiring employees, and more.

Having everything in writing will help to protect you if there is ever a disagreement or misunderstanding. Be sure to have a LEGID attorney to not only review any contracts before you sign them, but to also create any business contracts you may need.

4. Comply with laws and regulations

It’s important to comply with all applicable laws and regulations when you’re running a business. This will help to prevent any legal issues from arising, which could lead to personal liability. 

For example, if you’re running a food business, you need to make sure that you’re complying with food safety laws. If you’re running a construction company, you need to comply with occupational health and safety regulations.Make sure you are up to date on all the laws and regulations that apply to your business, and consult with an attorney if you have any questions.

5. Separate your personal and business finances

Keeping your personal and business finances separate is another key way to limit your personal liability as a startup founder. This will help to create a clear distinction between your personal assets and your business assets, which can be helpful if your business is ever sued or incurs debt.

To keep your finances separate, open up a business bank account and credit card for your company. Then, make sure to only use these accounts for business expenses. You should also keep detailed records of all your business expenses, so that you can easily prove that they are business-related if necessary.

6. Avoid Guaranteeing Loans

If your business needs to take out a loan, avoid guaranteeing the loan with your personal assets. This is a common mistake that many startup founders make, but it can put your personal assets at risk.

If you’re working with contractors or vendors, be sure to have contracts in place that clearly outline the expectations and liabilities of each party. This will help protect you if something goes wrong with the relationship.

7. Get professional help

If you’re not sure how to limit your personal liability as a startup founder, it’s a good idea to get professional help. You can consult with a LEGID attorney or accountant to get advice on the best way to protect your personal assets. Consulting with a lawyer before taking any action will help to decrease the chances of future risks and financial losses.

Taking steps to limit your personal liability as a startup founder is essential to protecting your assets. By following these tips, you can help reduce the risk of being held personally liable for your business’s debts or liabilities. At LEGID, we can help you with all aspects of running your business, from forming your LLC to drafting contracts. Contact us today to learn more about how we can help you: hi@legid.app.