Entrepreneurial Q&A: As a founder, what risks or personal liabilities should I be aware of?
Potential legal disasters. “We all learned that reading something before you sign it is best-practice in Adult Life 101. But how often do you really do that? Spending a little on attorney review now can mitigate the risk of a legal disaster down the line. Attorneys can catch the things that an untrained eye glazes over — like an indemnification clause that could end up with you on the hook for another entity’s legal fees.” Melissa Roberts, Free State Strategy Group LLC
Insurance liability. “It’s important to make sure that you understand your personal liability when it comes to insurance claims and other legal matters. Make sure you discuss how to form your company and the best ways to protect yourself personally from liability. Forming the right kind of corporate entity and ensuring you have the right insurance coverage will protect your loved ones and your personal property.” Jaime Derringer, Design Milk
Interest rate risk. “I recently purchased an office space for our company utilizing an SBA loan. The SBA loan required that I personally guarantee the adjustable rate loan on behalf of the company. I have interest rate risk. If something goes south with my company, I will be liable. I understood the risks involved with the loan, but for me, the risk of not buying the building was intolerable.” Max Coursey, Tiger Prop
Litigation risk. “You need to be aware of the risk of litigation against your company ruining you if you don’t keep corporate and personal assets separate — and I do mean completely separate. Particularly where startups are concerned, businesses are often seen as the alter ego of their founders. Facebook and Mark Zuckerberg are synonymous. That can easily come back to bite you if you aren’t careful.” Steven Buchwald, Buchwald & Associates
The possibility of lawsuits. “You do have to live on if the company fails, gets sued or the tax man investigates. Be sure you are insulated, informed and insured. Don’t leave accounting or contracts to the last minute or to those who don’t know how to do them. Be sure that as much as possible is in the company’s name, not your own.” Ben Gamble, Quincus
Hiring and management risks. “As founders, we are often focused on just our businesses and increasing profit margins. When bringing in new people and growing the company size, you are also opening up a whole new world of liabilities and responsibilities, such as insurance, health care, human resources and everything else you wouldn’t necessarily think about when starting your business. In short, make sure all bases are covered.” Zac Johnson, Blogging.org
Physical and emotional commitment. “Some people like the idea of running a business, others fully commit to it. The latter will be the successful ones, but the level of mental, emotional and physical commitment shouldn’t be underestimated.” Tom Chalmers, IPR License.