The Importance of Liability Protection for Growing Companies
When companies expand, it's easy to enjoy record sales quarters and celebrate new customers. However, it's also easy to overlook the risks that may accompany that expansion, especially for large companies.
That's why it's important to understand the importance of liability protection, as well as personal liability insurance for business purposes. The more you know, the better equipped you'll be to make the right decisions and minimize risk for your growing business.
What is liability?
In its simplest terms, liability means being responsible for something. When it comes to business, it's a little more complex.
According to Cornell Law School, liability in business refers to, "A legally enforceable claim on the assets of a business or property of an individual. In business, liability results from a breach of duty or obligation by act or failure to act."
Legal liabilities in business include financial liabilities or the debts your business owes. This includes accounts payable and business loans.
Other business liabilities include following the laws, rules, regulations, and acceptable standards for your country, state, industry and profession. Businesses that neglect or contravene these could be held liable, or responsible, for damages.
Risks of liability in growing businesses
Expanding businesses can lead to changes that expose companies to additional liabilities and risks. These changes include:
- Higher employee numbers
- Increasingly complex operations
- Larger data sets
- More sophisticated supply chains
As businesses grow, these factors change to accommodate new orders, products, services and business lines. And that means liability can become magnified for larger organizations. With a larger capacity for risk, the importance of liability protection becomes even more evident.
Protecting your business with liability insurance
Getting liability insurance for your business could offer financial protection against claims resulting in damages or injuries to other people, property, or businesses. If businesses don't have the appropriate liability insurance in place, legal actions and the costs associated could bankrupt them. In addition, a court could find individuals in the company personally liable for damages.
At the very least, businesses should have general liability insurance. This helps protect businesses from common claims such as personal injury, medical costs and property damage.
Personal liability insurance for business
Management liability insurance, or personal liability insurance for business, includes professional (errors and omissions) insurance, employment practices insurance, and directors and officers insurance. Here's what each covers:
- Professional liability insurance can help cover some of the risks that result from expanding businesses. And that includes risks from potential allegations of negligence and employee liabilities, as well as exposure of directors, officers and other key personnel.
- Employment practices liability insurance protects against issues resulting from the increasingly complex world of employer-employee relationships, including claims of wrongful termination, failure to employ or promote, and mismanagement of employee benefit plans.
- Directors and officers liability insurance protects corporate directors and officers from loss and defense costs for their actions and performance in their corporate roles.
Company expansion is exciting, but alongside growth comes exposure to additional risk. Talk to an experienced banker to find the best liability insurance policy to protect your company.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.