Hello everyone,
I've noticed that many businesses, including small ones, choose to register as a company to protect themselves from personal liability in case of unfortunate incidents. While it seems logical for larger businesses, I wonder if smaller businesses could rely on insurance coverage instead. Would insurance adequately protect them in case of unexpected events, or is registering as a company + insurance the most effective way to minimize risk?
Thanks in advance!
When your business doesn’t go well, and you fail to pay rent, your company goes broke.
If you have the lease in your name the creditors come after your assets.
This is why you should also avoid giving a personal guarantee (but not always possible).
Even if you are a company you still want that insurance.
choose to register as a company to protect themselves from personal liability in case of unfortunate incidents
No, directors have responsibilities and failure to uphold those does lead to personal liability.
I wonder if smaller businesses could rely on insurance coverage instead.
All size businesses take out insurance, why? Because you are not trying to isolate a failure, you are trying to mitigate a possible problem.
There are instances where a company structure will be ignored too.
what unexpected events are you talking about , there is a big difference in something like a workplace accident, negligence , or even just business drying up for whatever the reason.
Insurances cover insurable events, which are basically limited to negligence and property loss.
They dont cover things like breach of contract, defect claims (mostly) etc
If you want asset protection (ie protecting your personal assets from business losses) then you need a company. Insurance will cover some of the risks but not all and not even the most common business risks. Of course the company should also have insurance (and, as others have said, directors can nonetheless be held personally liable for certain matters).
Those insurances do exist for smaller businesses. Even for sole traders. Not sure what your question is?