As a small business owner in California, there are several steps you can take to protect yourself from personal liability.
- Form a Limited Liability Company (LLC): An LLC is a legal entity that separates your personal assets from your business assets. This means that if your business runs into financial trouble, your personal assets will not be at risk. To form an LLC, you will need to file articles of organization with the California Secretary of State and pay a fee.
- Obtain Business Insurance: Business insurance can provide protection against claims or lawsuits brought against your business. Types of insurance that can be useful for small businesses include general liability insurance, property insurance, and professional liability insurance.
- Comply with Corporate Formalities: Even if you have formed an LLC, you must still comply with certain requirements to maintain its legal protections. This includes keeping separate records for the business, holding annual meetings, and taking formal actions for major business decisions.
- Practice Sound Business Practices: By making reasonable business decisions and following ethical business practices, you can reduce the likelihood of facing legal or financial problems. This includes having contracts in place for all business transactions and consulting with an attorney when making important business decisions.
It is important to note that even with these precautions in place, there may still be situations where you could be held personally liable for your business's actions. For example, if you personally guarantee a business loan or commit fraud, you may be held personally responsible. It is important to consult with an attorney to discuss the specific risks and liabilities associated with your business.
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