When you start your startup, you are open to many vulnerabilities that you are probably unaware of. Read on to learn about five essential ways to protect your new business, from the type of insurance you need to the security measures you need to take to protect your brand to choosing a business structure. .
When it comes to commercial insurance, more is always better. Having the right business insurance coverage can mean the difference between your business surviving or failing. To protect your new business, consider the following five categories of insurance:
- General liability. To protect your business against lawsuits related to accidents caused by your product or service, you will need general liability insurance. Additionally, some industries require specific liability coverage. For example, consultants and accountants often purchase errors and omissions insurance to protect against negligence suits.
- Car. If your new business plans to provide company or delivery vehicles, you need a separate business auto insurance policy to cover business driving.
- P&C insurance. You will need property and casualty insurance to protect your business against damage and loss to property and environments, such as fire and burglary. You may need additional coverage if you live in an earthquake or flood prone area.
- Employment-related insurance. In most cases, if you have employees, you are required by law to have workers’ compensation insurance, unemployment insurance, and in some states, disability insurance. There are exceptions for sole proprietors and some corporate owners, so check with the Secretary of State’s office in your home state for EI requirements.
In addition to the standard types of coverage, you may also want to protect your business with business income loss insurance, cybersecurity insurance, and key person insurance, which covers the business for a specific period if an essential member of the company dies.
In addition to obtaining data breach insurance, a new business must do their due diligence to make sure the breach doesn’t happen in the first place. Preventive measures against ransomware and phishing attacks can save your business a headache in the future. Make having a comprehensive cybersecurity plan in place a priority. Start by hiring a cybersecurity expert who understands your business and can explain all possible threats to your critical business data. Then compile an action plan and ask all employees to adhere to it. With more employees working remotely, the risk 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 should do all you can to protect it. Here are the differences between each IP address and how to protect yours.
- Trademark. A trademark is a word, phrase, name, design or symbol, or a combination thereof, that identifies your company’s products or services. Trademarks are your company name, product names, logos and slogans. A trademark protects the business from another business using the name, logo, etc., without permission. Trademark registration is 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 specific number of years. Patented property includes software processes and product designs, among other creations. Patents are guaranteed by the USPTO and must be original, useful, and not obvious to others with basic skills in the field or industry. The patent process is very complex and most business owners hire a lawyer, patent agent or licensing company.
- Copyright. Copyright protects the “original works of the author”, 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, movies, literature, website copy, blog content, marketing materials, and computer code. Copyright registration is 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. In other words, the owner is personally responsible for the legal and financial debts of the company. So, 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 business 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 does not pay its debts or is sued, the assets of the business owner (or the business’s investors) are usually protected.
The incorporation of your new business begins at the office of your state’s secretary of state. This involves filing documents, paying an application fee, and staying in compliance with state requirements for good character. Additionally, because running a C Corp requires more compliance than an LLC, many business owners choose the LLC for the increased flexibility offered by the management structure.
There are several differences between C Corp and LLC tax structure, investor rules, etc. So it’s important to talk to your accountant and lawyer about what makes the most sense for your business. But in general, both entities offer better protection of the business owner’s personal assets than the sole proprietorship.
Keep your business compliant
To keep your business in good standing and for its long-term survival, you need to ensure your business is compliant. Compliance rules cover everything from meeting annual filing deadlines to registering various business licenses and permits to paying the appropriate payroll taxes in the state or states where your business operates.
Most states require registered corporations and LLCs to file an information statement, also called an annual return, with the office of the Secretary of State. Additionally, if your business sells products and services subject to sales tax, you will need a sales tax license from the state tax administration office.
If your business operates in a state other than the state of incorporation, the state where the business transactions take place may require you to apply for a foreign qualification in that state. If you plan to have employees working remotely in other states, in addition to paying payroll taxes in your home state, you must also register in the employee states. State regulations vary, so be sure to check with each state where you do business.
Finally, each state has its own economic nexus threshold. If you reach it, as an out-of-state business, you must pay sales tax to those states and comply with their rules and regulations.
It may seem complex, but taking the time to protect your business from the start will help ensure your future success.