January 11, 2011
*****************
************
Question
**********
Ken
Now I’m really frustrated. I use your contracts and am Incorporated. We are a small family business (my son and I do most all installations) and I thought by incorporating I could at least protect my personal assets. It seems that after reading some of your replies to others about this that I would still be liable. Do the terms of the contract apply (liquidated damages $ 250.00) ? If I’m liable with or without the contract, with or without Incorporating, why don’t I quit using contracts, drop the corporation and insurance payments and fly by the seat of my pants? …… I know these items help BUT HOW DO I PROTECT MY ASSETS?
Mike
************
Answer
***********
Because if you stop using contracts, get rid of your corporation and drop your insurance, you won't have any pants, and you won't be flying, you'll be hiding under a rock. If you are the person doing the work then you can't expect your corporation to shield you from your own negligence and the damages that flow from that negligence. Same as if you decide to smack one of your subscribers while on the job - you're going to get arrested and telling them you're a corporation isn't going to help.
There are basically two types of liability you have running your business, those arising under contract or tort. Your corporation will shield you from personal liability for corporate contractual debts. Your corporation will shield you from torts [negligent acts] if performed by your employees, but not you.
Your contracts will protect you and your corporation for your negligent performance of the work and services. Just like your corporation can benefit by "contracting away liability for its own negligence" the contract will extend to all corporate employees acting under that contract. While the contract would provide the same protection to you personally if you did business in your own name or an assumed name, you would also be on the hook for your employees negligence. So the contract and corporation do provide a level of protection.
Dropping insurance because you may continue to face some damages makes no sense at all, and no one should be conducting security services without insurance. As I think about it, many license statutes call for background checks by the state getting fingerprints, but not many require a minimum E&O policy. That requirement would protect the public, and the alarm company.
Having said all that, yes you do have personal exposure when you conduct business, including alarm business. Your personal assets are therefore exposed no matter what precautions you take, unless you strip yourself of assets, which is why I recommend you also look into asset protection.
If you incorporate, be sure to use proper contracts, make a conscientious effort to provide proper services within code and manufacturer guidelines, screen your employees thoroughly, comply with all licensing requirements, and carry adequate E&O insurance, then, you will have taken reasonable steps to protect yourself, and you don't have to reside under a rock.
**********
Question
*********
Ken
In addition, if he changes the organization of his company, will he have to amend or perhaps obtain new licenses?
Gary Dawkins, CEO
San Antonio, TX
*********
Answer
*********
Yes. If you change your business structure in any way you must notify the licensing agency and switch your license to the new entity. That applies to changing from dba to corporation, or corporation to a new corporation, or corporation to LLC [or any other combo]. Not only will you need to switch your license, but don't forget about all your other distinguishing credentials, like federal tax id, sales tax number, insurance policies, assign your contracts, tell your suppliers you have changed business entities so the new entity is billed. Continuing to do business under a defunct entity is another way to expose you to personal liability for both contract and tort. Don't do it.