What Every Business Needs to Know About Liability

Fifteen million. That is the number of civil suits filed each year in the United States. Add up criminal cases, and it totals to a whopping 80 million court cases filed per year. If you compare these statistics to the fact that 80 percent of the lawyers in the world reside in America, it is plain to see that litigation is a legitimate concern for businesses. A company interacts with various people in varied situations on a daily basis. As a result, it faces an array of potential liabilities in these areas of operation.

What Is a Liability?

A liability is anything that a company is obligated by law to provide compensation for, for damage or loss incurred in the course of a transaction. Different businesses have different legal, organizational structures. These structures affect both the risk and extent of liability an entrepreneur encounters. For example, an LLC owner faces a different degree of exposure to liability compared to a sole proprietor or a member of a partnership.

Types of Liabilities a Business Is Exposed To

An enterprise is open to being sued for liability in many areas because its operations encompass several activities touching different people. The core areas you can expect exposure to liability include:

• Advertising

A business will one time, or another find the need to publicize its goods or services to a target audience in a quest to boost or retain sales. Any bad practice adopted during advertising can result in charges against the firm. The exposure here can be the financial damage to another entity or person or other such injuries that arise while advertising its services or goods.

• Contracts

Certain types of contractual situations expose a business to liability in case of any breach. Firms that regular agree to assume another entity’s liability in the course of their operations are most at risk here.

• Operations

The activity that a business carries out during its operations is one notorious area known for liability exposure. Despite precautions taken to ensure the safety of staff, accidents can and do still occur. Another area of operations that can provide exposure is completed operation liability. If you carry out work for another party and any injury occurs once it is finished, you might be liable.

• Premises

The physical location an organization operates from contains inherent risks that might lead to liability. This is regardless of whether you own the building or rent it. Any risk arising from a firm’s occupation or use of a facility ought to be protected against.

• Product

The product or service that a company produces for sale to its clientele also carries inherent risk of liability.

How A Business Can Protect Against Liability

Some ways that an enterprise can protect against or reduce the level of exposure to liability include:

• Choosing A Suitable Business Structure

A primary precaution is selecting the type of legal business structure the business can operate under. Each has its advantages and disadvantages that an entrepreneur must consider. For example, a sole proprietorship might not have limited liability, but it is not subject to double taxation, unlike LLCs.

• Insurance

Insurance is a mainstay for many companies in managing their liability exposure. There are several types of insurance policies to pick from, and they include:

1. General Liability Insurance

An “all-purpose” policy for any company that protects against financial injury, libel, costs of defending a lawsuit, etc.

2. Commercial Property Insurance

A firm that owns or rents a substantial amount of physical assets or property requires this type of policy. It protects against property damage due to a wide scope of causes.

3. Product Liability Insurance

Manufacturers, distributors, wholesalers, and retailers of physical goods need to protect against financial risk due to bodily harm or injury resulting from a product.

4. Professional Liability Insurance

For firms that deal in services the exposure to liability arising from malpractice, negligence or errors is key.


A business encounters a broad range of areas where damage, injury or loss can happen leading to incurred liability. In the highly litigious society firms now operate in, it is important to take stock of any potential areas of vulnerability that need to be covered against. Various insurance policies are available to provide protection against optional liabilities and the damage they can cause a company to incur.

Adam Richards

About Adam Richards

Adam Richards is a semi-retired business professional originally from Bangor, Maine. He spent the majority of his career in sales and marketing where he rose to the marketing lead of a Fortune 1000 company. He then moved on to helping people as a career counselor that specifically helped bring families to self-sufficiency through finding them rewarding careers. He has now returned to Bangor for his retirement and spends his free time writing. This blog will be about everything he learned throughout his career. He'll write on career, workplace, education and technology issues as well as on trends, changes, and advice for the Maine job market and its employers.