How Liability Minimization Can Protect Your Business

There are a myriad of ways in which your company can experience losses besides having an unprofitable year. A client, vendor or employee could file a lawsuit against you for something you never even thought to worry about. Liability minimization is the process of taking steps to limit financial risk in the event something goes wrong. These steps include maintaining insurance coverage, putting procedures in place to limit financial exposure, and determining the optimal way of forming your organization.


Without professional liability insurance, a mistake could put a professional services firm out of business. For example, a structural engineer is responsible for making sure that architectural plans are structurally sound. If the building subsequently collapses, the engineer will likely be held responsible unless they can prove otherwise. However, with professional liability insurance in place, the firm would only be liable for the deductible on the policy, assuming the limitation on the coverage is enough to pay for the damages. Higher limit policies are available, but the cost of coverage rises along with the limits. The important thing is to have policies in place to minimize your company’s financial risk.

Policies and Procedures

Employment law gets more complex every year, and with it come new ways for employees to bring a suit against your company. For example, some 401(k) plans require employer match funding no later than the end of the month in which the employee made their contribution. If those funds are not submitted on time, the employee may demand the money their investments could have made in the interim. In this case, you could minimize liability by putting the appropriate procedures in place to ensure the funds are submitted on schedule.

Employment practices can also keep you out of trouble by, for example, ensuring that your company follows documented anti-discrimination and anti-harassment policies. Make sure you have a written complaint procedure for employees to follow. Provide your supervisors with the training they need, and address employee problems quickly. 

Business Structure

There are many ways in which to minimize owners’ liability having to do with the business structure itself. In general, owners of corporations or LLCs are protected from personal responsibility for the company’s liabilities, though there are exceptions. A company’s structure can get very complicated, but in most cases, the goal is to limit owners’ liability.

You may want to contact a business attorney, such as an asset protection lawyer from Bott & Associates, LTD., for advice about these and other ways to protect your company through liability minimization.