SMALL BUSINESS LAW 1 SMALL BUSINESS LAW 3 Week 6 – Draft Research Paper Brian Cooke Wilmington University BLA 310 – Small Business Law 04/23/2020 Abstract It is indeed true that proper management of small businesses can offer protection from liability. Liability refers to the situation of being responsible for a particular act. A business is liable financially and legally. Proper liability risk management protects small businesses. The paper discusses several ways in which adequate management of liability risks can help in protecting small businesses against liabilities such as financial liabilities and legal liabilities. Proper procurement, cost, and change management also protect small businesses against liabilities.  How Proper Management of a Small Business Can Provide Protection from Liability Operating a business can be fun, profitable, and challenging. However, the owner of a small business is legally liable hence can get sued. A lawsuit can be costly, emotionally draining, and time-consuming. For many small businesses, accusations associated with pending lawsuits can seriously damage their reputation. Civil suits against companies have increased by over 300% in the past two decades. Owners of small businesses need to protect themselves from huge expenses and devastating results resulting from unfavorable decisions in court. Many owners of small businesses fear to incur losses if a particular individual sues them. This is mainly for business owners who finance their companies using their capital. Liability comes in the form of financial liability and legal liability. These forms of liability have significant impacts on small businesses. There are several ways in which small business owners can go about limiting the possibility of legal liabilities to ensure the continuity of a business. They include purchasing specific types of insurance covers and transforming the business into a limited liability company or corporation (LLC) (Gupta, 2019). These ways will help safeguard small companies against liability. However, one significant way in which small business owners can protect their businesses from liability is to ensure that various aspects of a business are properly managed. This paper examines how proper management of small companies can offer protection from liability.  Getting to Understand the Business Liability Liability refers to the situation of being responsible for a particular act (Mancuso, 2019). A business is liable financially and legally (Mancuso, 2019). Any business is financially liable since there are some liabilities, such as payable debts. For instance, if a business applies for a loan, the outstanding loan balance will be regarded as a liability. This is because the business is responsible and obli.

1. SMALL BUSINESS LAW
1
SMALL BUSINESS LAW
3
Week 6 – Draft Research Paper
Brian Cooke
Wilmington University
BLA 310 – Small Business Law
04/23/2020
Abstract
It is indeed true that proper management of small businesses
can offer protection from liability. Liability refers to the
situation of being responsible for a particular act. A business is
liable financially and legally. Proper liability risk management
protects small businesses. The paper discusses several ways in
which adequate management of liability risks can help in
protecting small businesses against liabilities such as financial
liabilities and legal liabilities. Proper procurement, cost, and
change management also protect small businesses against
liabilities.
How Proper Management of a Small Business Can Provide
Protection from Liability
Operating a business can be fun, profitable, and challenging.
However, the owner of a small business is legally liable hence
can get sued. A lawsuit can be costly, emotionally draining, and
time-consuming. For many small businesses, accusations
associated with pending lawsuits can seriously damage their
reputation. Civil suits against companies have increased by over
300% in the past two decades. Owners of small businesses need
to protect themselves from huge expenses and devastating
results resulting from unfavorable decisions in court. Many

2. owners of small businesses fear to incur losses if a particular
individual sues them. This is mainly for business owners who
finance their companies using their capital. Liability comes in
the form of financial liability and legal liability. These forms of
liability have significant impacts on small businesses. There are
several ways in which small business owners can go about
limiting the possibility of legal liabilities to ensure the
continuity of a business. They include purchasing specific types
of insurance covers and transforming the business into a limited
liability company or corporation (LLC) (Gupta, 2019). These
ways will help safeguard small companies against liability.
However, one significant way in which small business owners
can protect their businesses from liability is to ensure that
various aspects of a business are properly managed. This paper
examines how proper management of small companies can offer
protection from liability.
Getting to Understand the Business Liability
Liability refers to the situation of being responsible for a
particular act (Mancuso, 2019). A business is liable financially
and legally (Mancuso, 2019). Any business is financially liable
since there are some liabilities, such as payable debts. For
instance, if a business applies for a loan, the outstanding loan
balance will be regarded as a liability. This is because the
business is responsible and obligated to pay it back.
Outstanding debts owed to vendors and suppliers are also
regarded as liabilities. A business is legally liable since the
business must adhere to regulations, rules, laws, and generally
accepted standards. Any business firm that is guilty of violating
these regulations and laws could be held liable for the damages
that might result from that failure. For instance, during the
winter season, most businesses have a responsibility to clear
their sidewalks of ice and snow. If the business fails to do this
and individual slips and falls, the business could end up paying
for the damages as a result of failure to clear their sidewalks of
ice and snow.

3. Legal liability (lawsuits) can bring down a small business. One
significant and significant way in which a small business can
protect itself from liability is through proper management of
liability risks. The following procedures will guide the owners
of small businesses on how to properly manage liability risks
hence adequately protecting the small businesses against
liabilities.
Proper management of liability risks by setting up the right
legal entity
The process of protecting small businesses from liabilities starts
with having in place the correct legal entity (Kahal, 2017). If an
individual is operating a sole proprietorship form of business,
then his/her assets that include investments, home, and other
personal properties can be seized in the event of a lawsuit or if
he/she owes creditors. However, the formation of a limited
liability company (LLC) may help to protect small business
owners and their creditors from personal responsibility in the
case of court decisions or debts against the small business. For
an LLC, only the company's assets will be used to clear debts if
the company failed to fulfill its obligations (Potter & Heckman,
2018).
The owners of small businesses can also layer various legal
structures for several parts of their businesses to enhance
protection against liabilities. For instance, if an individual owns
a retail store and gets rental income from tenants who live
above the retail store, he/she could consider setting up separate
legal entities for the ownership of building and business (retail
store). If his tenants were to sue him/her, the retail business
would not be negatively affected. Coming up with a layered
structure puts more distance between the business owner and
any incidents that might lead to lawsuits or business debts.
Proper Management of Liability Risks by Getting the Proper
Insurance
The owners of small businesses should identify the type of
insurance cover that is required in the business (Mancuso,

4. 2019). Some of the insurance liability coverage includes the
product, general, and professional liability coverage (Mancuso,
2019). A broker will be able to help you choose the best
insurance policy for you and your business based on your needs
(Mancuso, 2019).
Having proper insurance coverage does not prevent the business
from being sued. However, it can help separate the business and
personal funds from the financial strains that are associated
with a legal liability (lawsuit). The insurance company will
assist the business by covering the costs of liability and legal
fees.
It is of great essence for small business owners to find out the
variety of liability policies that are provided before making a
decision (Mancuso, 2019). Most of the small businesses buy
general liability insurance cover that protects the business
against a worker filing a lawsuit in case he/she gets injured
while at the place of work. Other small businesses might opt to
choose omissions and errors insurance that protects the business
against a lawsuit that is filed by a client due to a mistake made
when undertaking the project work (Mancuso, 2019). The
owners of small businesses should consult insurance brokers to
find out the insurance liability policy that works best for their
businesses.
Proper Management of Liability Risks by Setting up High-
Quality Standards
It is important to study business practices (business culture) and
work with the staff to come up with quality standards for the
product that is being produced or services that are being offered
(Steingold & Steingold, 2019). After determining how things
should be done, it is significant to enforce the set quality
standards. Employees should also be encouraged to be in a
position to recognize if the quality standards are met or not. It
is, therefore, through proper quality management that the

5. business can protect itself from liabilities.
Proper Management of Liability Risks by Testing the Quality
Standards
The work that is undertaken by a business can be selected
randomly and evaluated to find out whether it meets the
required standards (Steingold & Steingold, 2019). If the work
meets the required standards, then the business owner might
consider raising the business standards higher. The business can
also adopt continued testing of products. This will help alert the
business managers concerning the possible defects in the design
or manufacture of a product that is being sold by the business.
However, a failure to conduct effective testing of products can
lead to negligence of the manufacturer or a failure to recall
dangerous or faulty products. This can result in the business
firm being sued in a court of law. The managers of small
businesses have proven that they have taken reasonable steps to
avoid product defects. They have also implemented a production
process that is safe and incorporates regular testing and research
where necessary. This is likely to minimize the occurrence of
liability risks. By carrying out continuous product testing to
ascertain the quality standards of the product, the business will
be avoiding legal liability (lawsuits) associated with selling
products with defects or faults.
Proper Management of Liability Risks by Using Legal Contracts
A small business that makes changes to products should come
up with specific measures to review the procedures and
processes of the manufacturer (Steingold & Steingold, 2019).
They should also be comfortable with the products or
components from a supplier. It is highly recommended that legal
contracts be put in place to confirm that the vendors or
suppliers hold the ultimate financial responsibility for product
defects before supply. The legal contracts are used by the
business when dealing with other individuals or business firms.
Legal contracts usually protect the interests of a business firm

6. in case of a lawsuit. It is also important to clearly define the
products or services the business is offering to a client to
reduce the chances of legal disputes. The legal documentation
will outline what is expected from each party in a binding
agreement. Legal contracts are, therefore, important in that they
help small businesses protect themselves from legal liabilities.
Proper Management of Liability Risks by Creating a Safe
Workplace Environment
Small businesses usually ensure that they comply with the
safety rules provided by local, provincial, and federal
governments. Some safety standards and regulations include
hygiene in eating rooms, adequate ventilation and lighting,
emergency safety equipment, and exits that are marked clearly
(Steingold & Steingold, 2019). Small businesses also have
proper insurance coverage for personal injury claims. For
instance, if a worker or any other person is injured while at the
business premises due to an employee’s fault, or other items
that are not properly maintained, then the business is
responsible for medical costs and other charges. In this
particular case, the insurance company will pay the medical
costs and other charges since the firm has a personal injury
liability cover. By creating a safe working environment and
having a personal injury liability cover, the small business can
protect itself against liability.
Proper Management of Liability Risks by Training the Staff
Small businesses can minimize the occurrence of liability risks
by regularly training their employees (Steingold & Steingold,
2019). The employees can be trained in physical safety. This
will minimize the risks of injuries and costs associated with
paying for medical expenses. The workers will also be qualified
to provide high-quality services. This minimizes the risks of a
business being sued for providing low-quality services. This is
because the business will be offering high-quality services;
hence the likelihood of being sued will be less. It is in this

7. particular way that proper management of human resources by
training staff, therefore, helps small businesses to protect
themselves against liabilities. Small businesses are, therefore, at
the forefront in properly managing human resources as a
technique to protect themselves against liabilities.
Proper Management of Liability Risks by Documenting
Everything
Small businesses usually ensure that they properly manage their
documents by ensuring that their records are accurate and
complete (Steingold & Steingold, 2019). This will assist the
businesses in cases of legal liabilities (lawsuits). Most of the
small businesses have made it a standard practice to keep
accurate and complete records all the time. This particular
process, for example, involves indicating the time and date of
when a certain agreement was signed, and the agenda discussed
at each meeting. Any communication that includes transactions,
emails, and phone calls can also be documented. These records
are of great essence in case of lawsuits. This is because accurate
and complete records are used as a defense in case of a lawsuit.
To best protect itself, a small business should keep track of
various documents. Those documents include expensing receipts
that the firm’s accountant plan to write off, documentation on
the income of a business, proof of payment for various types of
payments, accounting journals and ledgers, and files for all
employees. Proper management of important documents,
therefore, assists the small business to protect itself against
liabilities. By doing so, the small businesses are likely to
protect themselves against liabilities since there will be enough
evidence to be presented in a court of law.
Proper Management of Liability Risks by Getting Outside
Perspective
Small businesses usually consult insurance brokers who give an
outside view on liability risks and the recommended coverage
(Steingold & Steingold, 2019). The managers of small business

8. firms can ask industry mentors and colleagues to evaluate the
practices of the business. The managers of small businesses
will, therefore, find out whether they are too close to observe
things objectively. This will minimize the likelihood of the
occurrence of various liability risks.
Proper Management of Liability Risks by Listening to the Staff
Workers are more prone to errors if they are not happy or have a
feeling that they do not matter (Steingold & Steingold, 2019).
Small businesses have been setting up clear processes by which
employees can raise complaints or concerns. They do this by
setting up efficient systems that are used to report complaints.
This can help lower the level of dissatisfaction and bad feelings
that might result in employees’ lawsuits. Proper management of
complaints and concerns from workers, therefore, protect
against liabilities.
Proper Management of Liability Risks by Running a Good
Business
There are various features of a good business. The owners of
small businesses have been striving to run good businesses
(Steingold & Steingold, 2019). A good business is the one that
sells a good product, has motivated staff who holds themselves
to a high standard, and the one with a clean and welcoming
environment. Most of the small businesses have been treating
their customers and clients well, hearing their complaints and
concerns, and meeting their needs and requirements. By doing
so, the complaints from the customers will reduce. A reduction
in complaints from customers is associated with a decrease in
liability risks. Running a good business, therefore, offers
liability protection to small businesses against liability.
Proper Management of Liability Risks by Having Good
Leadership
The owners of small businesses have been recruiting qualified
professionals to manage their businesses (Steingold &

9. Steingold, 2019). Qualified professionals can manage well
businesses. Financial liability risks are minimized because the
finances of the businesses are managed well. Good leaders will
take a loan and use the finances well in a productive manner
and ensure that the business does not default in paying back the
loan. Good leadership, therefore, protects against liabilities.
Proper Management of Liability Risks by Having an Attorney
A business attorney is a necessity for all businesses. The owners
of small businesses have been hiring an attorney (Steingold &
Steingold, 2019). A business attorney guides the business on
how to manage liability risks. The attorney advises the business
owners on the duties and responsibilities as an employer and
helps them to put safeguards in place to protect their
businesses. The business owners will then be able to set up the
appropriate and best business structures. Attorneys also refer
business owners to reliable employees’ compensation or
personal injury lawyer should they require one.
The attorney also plays a significant role in the day-to-day
operations of a small business. For instance, attorneys play an
important role when setting up contracts and during file
documentation. The attorney is also contacted when a lawsuit is
filed against the business. The duty and responsibility of an
attorney are to advise the small business owners of the proper
measures that can be taken to ensure that the liabilities of the
business are covered properly. The business will, therefore, be
undertaking its operations correctly; hence liability risks are
minimized or eliminated.
Proper Management of Liability Risks by Having a Contingency
Plan
Some small businesses can undergo tough times. These tough
times can place a lot of pressure on the company owner's
finances. Small business owners have been putting in place a
plan to protect themselves against any downturn in business
activity. This will minimize financial liability risks. The small

10. business will finally be protected against liability, specifically
financial liability (Steingold & Steingold, 2019).
Proper Management of Liability Risks by Ensuring Asset
Protection
Small business owners have been putting in place a
comprehensive asset-protection plan (Gitman et al., 2018). This
particular plan prevents or significantly reduces liability risks
by insulating the business from the claims of creditors. An asset
protection plan utilizes existing legal strategies when a claim or
a lawsuit arises. This can prevent a potential claimant or help
deter the seizure of the business assets after a court ruling. It is
in this particular way that asset protection protects against
liabilities.
Proper Management of Liability Risks by Writing and
Implementing the Policies and Procedures of a Business
Another significant step in protecting small businesses is to
properly draft workplace procedures and policies that might
help prevent lawsuits against the businesses (Gitman et al.,
2018). The staff is urged to adhere to these policies. This is
because workplace policies are vital in protecting the business.
Employees are provided with either an employee handbook or a
job manual (Gitman et al., 2018). They read the manual or
handbook to learn policies and perform their tasks well. The
procedures and policies can, therefore, help small businesses
protect themselves against liabilities.
Proper Procurement Management
The procurement managers of small businesses have been
developing procurement management plans (Gitman et al.,
2018). The procurement management plan will guide how all the
procurement processes of the business are undertaken. This
ensures the company is not wasting money, offering
unnecessary products. Proper procurement management,
therefore, helps to protect small businesses from business

11. liabilities.
Proper Cost Management
The managers of small businesses have developed cost
management plans. The cost management plan ensures that the
business firm does not incur unnecessary costs. Proper cost
management, therefore, provides liability protection to small
businesses.
Proper Change Management
The managers of small businesses have been coming up with
change management plans. These change management plans
define how changes in a business will be controlled and
addressed to track and manage changes effectively. It is in this
particular manner that proper change management protects
small businesses against liabilities.
Conclusion
Small businesses need to ensure that they are protected against
business liabilities. As discussed above, proper management of
various aspects of business substantially reduces liability risks
and protects small businesses from the consequences of the
occurrence of liability risks. Business owners should, therefore,
ensure that their businesses are properly managed.
References
Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L.,
Talsma, B., & Hyatt, J. C. (2018). Corporations: Limiting Your
Liability. Introduction to Business.
Gupta, M. K. (2019). Limited Liability Partnerships (LLP) and
Business Groups in India: A Law and Economics Analysis.
Kahal, A. (2017). Limited Liability Partnership: An Emerging
Business form for Entrepreneurs. International Journal of
Engineering and Management Research (IJEMR), 7(3), 654-657.

12. Mancuso, A. (2019). Your limited liability company: an
operating manual. Nolo.
Potter, D., & Heckman, S. J. (2018). Business Entity Selection:
A Human Capital Approach. Journal of Financial
Planning, 31(4).
Steingold, F. S., & Steingold, D. (2019). Legal guide for
starting & running a small business. Nolo.