Week 7 - Final Research Paper

Week 6 – Draft Research Paper

Brian Cooke

Wilmington University

BLA 310 – Small Business Law

04/23/2020

Abstract

It is indeed true that proper management of small businesses can offer protection from liability. Liability refers to the situation of being responsible for a particular act. A business is liable financially and legally. Proper liability risk management protects small businesses. The paper discusses several ways in which adequate management of liability risks can help in protecting small businesses against liabilities such as financial liabilities and legal liabilities. Proper procurement, cost, and change management also protect small businesses against liabilities. 

How Proper Management of a Small Business Can Provide Protection from Liability

Operating a business can be fun, profitable, and challenging. However, the owner of a small business is legally liable hence can get sued. A lawsuit can be costly, emotionally draining, and time-consuming. For many small businesses, accusations associated with pending lawsuits can seriously damage their reputation. Civil suits against companies have increased by over 300% in the past two decades. Owners of small businesses need to protect themselves from huge expenses and devastating results resulting from unfavorable decisions in court. Many owners of small businesses fear to incur losses if a particular individual sues them. This is mainly for business owners who finance their companies using their capital. Liability comes in the form of financial liability and legal liability. These forms of liability have significant impacts on small businesses. There are several ways in which small business owners can go about limiting the possibility of legal liabilities to ensure the continuity of a business. They include purchasing specific types of insurance covers and transforming the business into a limited liability company or corporation (LLC) (Gupta, 2019). These ways will help safeguard small companies against liability. However, one significant way in which small business owners can protect their businesses from liability is to ensure that various aspects of a business are properly managed. This paper examines how proper management of small companies can offer protection from liability. 

Getting to Understand the Business Liability

Liability refers to the situation of being responsible for a particular act (Mancuso, 2019). A business is liable financially and legally (Mancuso, 2019). Any business is financially liable since there are some liabilities, such as payable debts. For instance, if a business applies for a loan, the outstanding loan balance will be regarded as a liability. This is because the business is responsible and obligated to pay it back. Outstanding debts owed to vendors and suppliers are also regarded as liabilities. A business is legally liable since the business must adhere to regulations, rules, laws, and generally accepted standards. Any business firm that is guilty of violating these regulations and laws could be held liable for the damages that might result from that failure. For instance, during the winter season, most businesses have a responsibility to clear their sidewalks of ice and snow. If the business fails to do this and individual slips and falls, the business could end up paying for the damages as a result of failure to clear their sidewalks of ice and snow. 

Legal liability (lawsuits) can bring down a small business. One significant and significant way in which a small business can protect itself from liability is through proper management of liability risks. The following procedures will guide the owners of small businesses on how to properly manage liability risks hence adequately protecting the small businesses against liabilities.

Proper management of liability risks by setting up the right legal entity

The process of protecting small businesses from liabilities starts with having in place the correct legal entity (Kahal, 2017). If an individual is operating a sole proprietorship form of business, then his/her assets that include investments, home, and other personal properties can be seized in the event of a lawsuit or if he/she owes creditors. However, the formation of a limited liability company (LLC) may help to protect small business owners and their creditors from personal responsibility in the case of court decisions or debts against the small business. For an LLC, only the company's assets will be used to clear debts if the company failed to fulfill its obligations (Potter & Heckman, 2018).

The owners of small businesses can also layer various legal structures for several parts of their businesses to enhance protection against liabilities. For instance, if an individual owns a retail store and gets rental income from tenants who live above the retail store, he/she could consider setting up separate legal entities for the ownership of building and business (retail store). If his tenants were to sue him/her, the retail business would not be negatively affected. Coming up with a layered structure puts more distance between the business owner and any incidents that might lead to lawsuits or business debts. 

Proper Management of Liability Risks by Getting the Proper Insurance

The owners of small businesses should identify the type of insurance cover that is required in the business (Mancuso, 2019). Some of the insurance liability coverage includes the product, general, and professional liability coverage (Mancuso, 2019). A broker will be able to help you choose the best insurance policy for you and your business based on your needs (Mancuso, 2019).

Having proper insurance coverage does not prevent the business from being sued. However, it can help separate the business and personal funds from the financial strains that are associated with a legal liability (lawsuit). The insurance company will assist the business by covering the costs of liability and legal fees.

It is of great essence for small business owners to find out the variety of liability policies that are provided before making a decision (Mancuso, 2019). Most of the small businesses buy general liability insurance cover that protects the business against a worker filing a lawsuit in case he/she gets injured while at the place of work. Other small businesses might opt to choose omissions and errors insurance that protects the business against a lawsuit that is filed by a client due to a mistake made when undertaking the project work (Mancuso, 2019). The owners of small businesses should consult insurance brokers to find out the insurance liability policy that works best for their businesses. 

Proper Management of Liability Risks by Setting up High-Quality Standards

It is important to study business practices (business culture) and work with the staff to come up with quality standards for the product that is being produced or services that are being offered (Steingold & Steingold, 2019). After determining how things should be done, it is significant to enforce the set quality standards. Employees should also be encouraged to be in a position to recognize if the quality standards are met or not. It is, therefore, through proper quality management that the business can protect itself from liabilities.

Proper Management of Liability Risks by Testing the Quality Standards

The work that is undertaken by a business can be selected randomly and evaluated to find out whether it meets the required standards (Steingold & Steingold, 2019). If the work meets the required standards, then the business owner might consider raising the business standards higher. The business can also adopt continued testing of products. This will help alert the business managers concerning the possible defects in the design or manufacture of a product that is being sold by the business. However, a failure to conduct effective testing of products can lead to negligence of the manufacturer or a failure to recall dangerous or faulty products. This can result in the business firm being sued in a court of law. The managers of small businesses have proven that they have taken reasonable steps to avoid product defects. They have also implemented a production process that is safe and incorporates regular testing and research where necessary. This is likely to minimize the occurrence of liability risks. By carrying out continuous product testing to ascertain the quality standards of the product, the business will be avoiding legal liability (lawsuits) associated with selling products with defects or faults. 

Proper Management of Liability Risks by Using Legal Contracts

A small business that makes changes to products should come up with specific measures to review the procedures and processes of the manufacturer (Steingold & Steingold, 2019). They should also be comfortable with the products or components from a supplier. It is highly recommended that legal contracts be put in place to confirm that the vendors or suppliers hold the ultimate financial responsibility for product defects before supply. The legal contracts are used by the business when dealing with other individuals or business firms. Legal contracts usually protect the interests of a business firm in case of a lawsuit. It is also important to clearly define the products or services the business is offering to a client to reduce the chances of legal disputes. The legal documentation will outline what is expected from each party in a binding agreement. Legal contracts are, therefore, important in that they help small businesses protect themselves from legal liabilities.

Proper Management of Liability Risks by Creating a Safe Workplace Environment

Small businesses usually ensure that they comply with the safety rules provided by local, provincial, and federal governments. Some safety standards and regulations include hygiene in eating rooms, adequate ventilation and lighting, emergency safety equipment, and exits that are marked clearly (Steingold & Steingold, 2019). Small businesses also have proper insurance coverage for personal injury claims. For instance, if a worker or any other person is injured while at the business premises due to an employee’s fault, or other items that are not properly maintained, then the business is responsible for medical costs and other charges. In this particular case, the insurance company will pay the medical costs and other charges since the firm has a personal injury liability cover. By creating a safe working environment and having a personal injury liability cover, the small business can protect itself against liability. 

Proper Management of Liability Risks by Training the Staff

Small businesses can minimize the occurrence of liability risks by regularly training their employees (Steingold & Steingold, 2019). The employees can be trained in physical safety. This will minimize the risks of injuries and costs associated with paying for medical expenses. The workers will also be qualified to provide high-quality services. This minimizes the risks of a business being sued for providing low-quality services. This is because the business will be offering high-quality services; hence the likelihood of being sued will be less. It is in this particular way that proper management of human resources by training staff, therefore, helps small businesses to protect themselves against liabilities. Small businesses are, therefore, at the forefront in properly managing human resources as a technique to protect themselves against liabilities. 

Proper Management of Liability Risks by Documenting Everything

Small businesses usually ensure that they properly manage their documents by ensuring that their records are accurate and complete (Steingold & Steingold, 2019). This will assist the businesses in cases of legal liabilities (lawsuits). Most of the small businesses have made it a standard practice to keep accurate and complete records all the time. This particular process, for example, involves indicating the time and date of when a certain agreement was signed, and the agenda discussed at each meeting. Any communication that includes transactions, emails, and phone calls can also be documented. These records are of great essence in case of lawsuits. This is because accurate and complete records are used as a defense in case of a lawsuit.

To best protect itself, a small business should keep track of various documents. Those documents include expensing receipts that the firm’s accountant plan to write off, documentation on the income of a business, proof of payment for various types of payments, accounting journals and ledgers, and files for all employees. Proper management of important documents, therefore, assists the small business to protect itself against liabilities. By doing so, the small businesses are likely to protect themselves against liabilities since there will be enough evidence to be presented in a court of law. 

Proper Management of Liability Risks by Getting Outside Perspective

Small businesses usually consult insurance brokers who give an outside view on liability risks and the recommended coverage (Steingold & Steingold, 2019). The managers of small business firms can ask industry mentors and colleagues to evaluate the practices of the business. The managers of small businesses will, therefore, find out whether they are too close to observe things objectively. This will minimize the likelihood of the occurrence of various liability risks. 

Proper Management of Liability Risks by Listening to the Staff

Workers are more prone to errors if they are not happy or have a feeling that they do not matter (Steingold & Steingold, 2019). Small businesses have been setting up clear processes by which employees can raise complaints or concerns. They do this by setting up efficient systems that are used to report complaints. This can help lower the level of dissatisfaction and bad feelings that might result in employees’ lawsuits. Proper management of complaints and concerns from workers, therefore, protect against liabilities. 

Proper Management of Liability Risks by Running a Good Business

There are various features of a good business. The owners of small businesses have been striving to run good businesses (Steingold & Steingold, 2019). A good business is the one that sells a good product, has motivated staff who holds themselves to a high standard, and the one with a clean and welcoming environment. Most of the small businesses have been treating their customers and clients well, hearing their complaints and concerns, and meeting their needs and requirements. By doing so, the complaints from the customers will reduce. A reduction in complaints from customers is associated with a decrease in liability risks. Running a good business, therefore, offers liability protection to small businesses against liability. 

Proper Management of Liability Risks by Having Good Leadership

The owners of small businesses have been recruiting qualified professionals to manage their businesses (Steingold & Steingold, 2019). Qualified professionals can manage well businesses. Financial liability risks are minimized because the finances of the businesses are managed well. Good leaders will take a loan and use the finances well in a productive manner and ensure that the business does not default in paying back the loan. Good leadership, therefore, protects against liabilities. 

Proper Management of Liability Risks by Having an Attorney

A business attorney is a necessity for all businesses. The owners of small businesses have been hiring an attorney (Steingold & Steingold, 2019). A business attorney guides the business on how to manage liability risks. The attorney advises the business owners on the duties and responsibilities as an employer and helps them to put safeguards in place to protect their businesses. The business owners will then be able to set up the appropriate and best business structures. Attorneys also refer business owners to reliable employees’ compensation or personal injury lawyer should they require one.

The attorney also plays a significant role in the day-to-day operations of a small business. For instance, attorneys play an important role when setting up contracts and during file documentation. The attorney is also contacted when a lawsuit is filed against the business. The duty and responsibility of an attorney are to advise the small business owners of the proper measures that can be taken to ensure that the liabilities of the business are covered properly. The business will, therefore, be undertaking its operations correctly; hence liability risks are minimized or eliminated.

Proper Management of Liability Risks by Having a Contingency Plan

Some small businesses can undergo tough times. These tough times can place a lot of pressure on the company owner's finances. Small business owners have been putting in place a plan to protect themselves against any downturn in business activity. This will minimize financial liability risks. The small business will finally be protected against liability, specifically financial liability (Steingold & Steingold, 2019). 

Proper Management of Liability Risks by Ensuring Asset Protection

Small business owners have been putting in place a comprehensive asset-protection plan (Gitman et al., 2018). This particular plan prevents or significantly reduces liability risks by insulating the business from the claims of creditors. An asset protection plan utilizes existing legal strategies when a claim or a lawsuit arises. This can prevent a potential claimant or help deter the seizure of the business assets after a court ruling. It is in this particular way that asset protection protects against liabilities. 

Proper Management of Liability Risks by Writing and Implementing the Policies and Procedures of a Business

Another significant step in protecting small businesses is to properly draft workplace procedures and policies that might help prevent lawsuits against the businesses (Gitman et al., 2018). The staff is urged to adhere to these policies. This is because workplace policies are vital in protecting the business. Employees are provided with either an employee handbook or a job manual (Gitman et al., 2018). They read the manual or handbook to learn policies and perform their tasks well. The procedures and policies can, therefore, help small businesses protect themselves against liabilities. 

Proper Procurement Management

The procurement managers of small businesses have been developing procurement management plans (Gitman et al., 2018). The procurement management plan will guide how all the procurement processes of the business are undertaken. This ensures the company is not wasting money, offering unnecessary products. Proper procurement management, therefore, helps to protect small businesses from business liabilities. 

Proper Cost Management

The managers of small businesses have developed cost management plans. The cost management plan ensures that the business firm does not incur unnecessary costs. Proper cost management, therefore, provides liability protection to small businesses. 

Proper Change Management

The managers of small businesses have been coming up with change management plans. These change management plans define how changes in a business will be controlled and addressed to track and manage changes effectively. It is in this particular manner that proper change management protects small businesses against liabilities.

Conclusion

Small businesses need to ensure that they are protected against business liabilities. As discussed above, proper management of various aspects of business substantially reduces liability risks and protects small businesses from the consequences of the occurrence of liability risks. Business owners should, therefore, ensure that their businesses are properly managed. 

References

Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018). Corporations: Limiting Your Liability. Introduction to Business.

Gupta, M. K. (2019). Limited Liability Partnerships (LLP) and Business Groups in India: A Law and Economics Analysis.

Kahal, A. (2017). Limited Liability Partnership: An Emerging Business form for Entrepreneurs. International Journal of Engineering and Management Research (IJEMR), 7(3), 654-657.

Mancuso, A. (2019). Your limited liability company: an operating manual. Nolo.

Potter, D., & Heckman, S. J. (2018). Business Entity Selection: A Human Capital Approach. Journal of Financial Planning, 31(4).

Steingold, F. S., & Steingold, D. (2019). Legal guide for starting & running a small business. Nolo.