When you’re just getting your startup off the ground, you’re open to a lot of vulnerabilities that you probably don’t know about. Read on to learn five critical ways to protect your new business—from the type of insurance you need to the 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 the survival or failure of your business. To protect your new business, consider the following five categories of insurance:
- General liability. To protect your business from lawsuits related to accidents caused by your product or service, you will need general liability insurance. In addition, some industries require specific liability coverage. For example, consultants and accountants often obtain “errors and omissions” insurance to protect themselves from negligence lawsuits.
- car. If your new business plans to provide company or delivery vehicles, you need a commercial auto insurance policy to cover business-related driving.
- Damage and accident insurance. You will need property and casualty insurance to protect your business from damage and loss of belongings and the environment, such as fire and theft. You may need additional coverage if you live in a flood or earthquake zone.
- Employment-related insurance. In most cases, if you have employees, you are required by law to have workers’ compensation insurance, unemployment insurance tax, and, in some states, disability insurance. There are exceptions for sole proprietors and some business owners, so check with your home state’s Secretary of State’s office for employment insurance requirements.
In addition to the standard types of cover, you may also want to protect your business with business interruption insurance, cyber security insurance and key man insurance, which covers the business for a specific period if a critical member of the company dies.
In addition to obtaining data breach insurance, a new business should do its due diligence to ensure that the breach does not occur in the first place. Preventative measures against ransomware and phishing attacks can save your business a future of headaches. Make it a priority to have a comprehensive cybersecurity plan. Start by hiring a cybersecurity expert who understands your business and can explain all the potential threats to your company’s critical data. Then create an action plan and require all employees to adhere to it. With more employees working remotely, the possibility of a data breach increases, especially if your staff is not trained to keep company information secure.
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 secure yours.
- Registered trademark. A trademark is a word, phrase, name, design or symbol (or a combination of these elements) that identifies your company’s goods or services. Trademarks are your company name, product names, logos, and slogans. A trademark protects the company from another company 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 company) the exclusive rights to make, use, and sell an invention for a specified number of years. Patented property includes software processes and product designs, among other creations. Patents are secured through the USPTO and must be original, useful and non-obvious to others with basic skills in the field or industry. The patent process is very complex and most business owners obtain the assistance of an attorney, patent agent, or licensing company.
- Copyright. Copyright protects “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 made through the US Copyright Office and is protected for the life of the author, plus an additional 70 years.
Incorporation of your business
The easiest (and least expensive) way to structure your new business is as a sole proprietorship. However, as a sole proprietor, the state considers your business a “non-entity” and therefore there is no legal separation from the business owner. That is, the owner is personally responsible for the legal and financial debts of the company. Therefore, if the sole proprietorship fails to pay its bills or is 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 company defaults on its debts or is sued, the business owner’s assets (or the company’s investors) are usually protected.
Incorporating your new business begins at your state’s Secretary of State’s office. It involves filing paperwork, paying filing fees and meeting state requirements for good standing. Also, because running a C Corp requires more compliance than an LLC, many business owners choose the LLC because of the greater flexibility the management structure offers.
There are several differences between C Corp and LLC 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 offer better protection for the business owner’s personal assets than the sole proprietorship.
Keep your business compliant
To keep your business in good shape 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 does business.
Most states require registered corporations and LLCs to file an information statement, also called an annual report, with the Secretary of State’s office. Additionally, if your business sells products and services subject to sales tax, you will need a sales tax license from the state tax authority’s office.
If your company does business in a state other than the state of formation, the state in which the business transactions are conducted may require you to apply for a foreign qualification within that state. If you plan to have employees work remotely in other states, in addition to paying payroll taxes in your home state, you must also register with the employees’ states. State regulations vary, so be sure to check with each state in which you do business.
Finally, each state has its own economic nexus threshold. If you get there, as an out-of-state business, 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 from the start will help ensure your future success.