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When you’re just getting your startup off the ground, you’re open to many vulnerabilities you’re likely not aware of. Read on to learn about five critical ways to protect your new company—from the kind of insurance you need to security measures you should take to safeguard your brand to deciding on a business structure.
When it comes to business insurance, more is always better. Having the right business insurance coverage can make the difference between your company’s survival or failure. To protect your new business, consider the following five categories of insurance:
- General liability. To protect your company from lawsuits related to accidents caused by your product or service, you’ll need general liability insurance. In addition, some industries require specific liability coverage. For example, consultants and accountants often get “errors and omissions” insurance to protect against lawsuits about negligence.
- Automobile. If your new business plans to provide company or delivery vehicles, you need a separate business auto insurance policy to cover business-related driving.
- Property and Casualty Insurance. You’ll need property and casualty insurance to protect your business from damage and loss of belongings and environments, such as fire and burglary. You may need extra coverage if you live in an earthquake or flood zone.
- Employment-related insurance. In most cases, if you have employees, you are obligated by law to have workers’ compensation insurance, unemployment insurance tax, and, in some states, disability insurance. There are exceptions for sole proprietors and some corporation owners, so check with the Secretary of State’s office in your home state for employment insurance requirements.
Besides the standard types of coverage, you might also want to protect your company with business income interruption insurance, cybersecurity insurance, and key man insurance, which covers the business for a specific period if a critical member of the company passes away.
Besides obtaining insurance in case of a data breach, a new business should do its due diligence to ensure the breach doesn’t happen in the first place. Preventive measures against ransomware and phishing attacks can save your company a future of headaches. Make it a priority to have a comprehensive cybersecurity plan in place. Get started by hiring a cybersecurity expert who understands your business and can explain all possible threats to your company’s critical data. Then compile an action plan and require all employees to adhere to it. With more employees working remotely, the chance of a data breach increases, especially if your staff is not trained to keep the company’s information safe.
Your company’s intellectual property (IP) is a valuable asset; therefore, as a new business owner, you must do everything you can to protect it. Here are the differences between each IP and how to protect yours.
- Trademark. A trademark is a word, phrase, name, design, or symbol—or a combination of those elements—that identifies your business’s goods or services. Trademarks are your company’s name, product names, logos, and taglines. A registered trademark protects the business from another business using the name, logo, etc., without permission. Trademark registration is done through the United States Patent and Trademark Office (USPTO) and must be renewed every 10 years.
- Patent. A patented invention gives an inventor (or business) the exclusive rights to manufacture, use, and sell an invention for a specific number of years. The patented property includes software processes, and product designs, among other creations. Patents are secured through the USPTO and must be original, useful, and not obvious to others with basic skills in the field or industry. The patent process is highly complex, and most business owners procure the assistance of an attorney, patent agent, or licensing firm.
- Copyright. Copyrights protect “original works of authorship,” which prevents others from duplicating or using the material without the permission of the creator or owner. Copyright protection includes assets such as music, art, film, literature, website copy, blog content, marketing materials, and computer code. Copyright registration is done through the U.S. Copyright Office and is protected for the author’s life, plus an additional 70 years.
Incorporating Your Business
The easiest (and least costly) way to structure your new business is as a sole proprietorship. However, as a sole proprietor, the state considers your company a “non-entity,” and therefore, there is no legal separation from the business’s owner. In other words, the owner is personally liable for the legal and financial debts of the company. So, if the sole proprietorship fails to pay its bills or gets sued by a customer or vendor, the owner’s personal assets can be seized to settle those debts.
For this reason, many new business owners choose to incorporate their companies as a C Corp or Limited Liability Company (LLC). Corporations and LLCs enjoy limited liability because the business is legally a separate and distinct entity. If the business fails to pay its debts or is sued, the business owner’s assets (or the business’s investors) are typically protected.
Incorporating your new business begins at the Secretary of State’s office in your state. It involves filing paperwork, paying filing fees, and staying in compliance with the state’s requirements for good standing. Also, because running a C Corp requires more compliance than an LLC, many business owners choose the LLC for the increased flexibility the management structure provides.
There are several differences between the C Corp and LLC’s tax structure, investor rules, and more, so it’s important to talk to your accountant and attorney about what makes the most sense for your business. But in general, both entities provide better protection for the business owner’s personal assets than the sole proprietorship.
Keeping Your Business Compliant
To keep your business in good standing and for long-term survival, you need to keep your business compliant. Compliance rules cover everything from meeting annual filing deadlines to registering for various business licenses and permits to paying the appropriate payroll taxes in the state/s where your company conducts business.
Most states require registered corporations and LLCs to file a Statement of Information, also called an Annual Report, with the Secretary of State’s office. Also, if your business sells products and services subject to sales taxes, you will need a sales tax license from the state tax authority office.
If your company conducts business in a state other than the state of formation, the state where the business transactions are taking place may require you to apply for foreign qualification within that state. If you plan to have employees working remotely in other states, in addition to paying payroll taxes in your home state, you also must register in the employees’ states. State regulations vary, so be sure to check with each state where you do business.
Finally, every state has its own threshold for economic nexus. If you reach it, as an out-of-state company, you must pay sales tax to those states and comply with their rules and regulations.
It may sound complex, but taking the time to protect your business at the outset will help secure your future success.
This article, “5 Ways to Protect Your New Business” was first published on Small Business Trends