If you have no personal assets, you probably don't need much protection. They say "you can't get blood from a turnip". Hey, if someone wants to take over your credit card debt, they are welcome to it!
But if you do have investments, or own a home, and someone sues your business, they could take your personal assets. If you do not incorporate your business, by default it is a "sole proprietorship". This means your business is YOU and your assets are at risk.
If your product is something like greeting cards, then you are not extremely vulnerable to a lawsuit. You would think it would be difficult for someone to be harmed by a greeting card, but someone might interpret the prose on the card as personal character defamation, or they might get a paper cut from the card. Remember a few years ago when a lady sued McDonalds after she burned herself by placing a cup of hot coffee between her legs?
If your product is a food item or a physical object, you could be especially at risk of a lawsuit. The list below provides some steps you should take to protect yourself if you run a business.
1. Incorporate your business. A corporation is treated like a separate individual. If the corporation is sued, your personal assets cannot be taken. You don't need to pay a lawyer $1000 to file the papers to incorporate your business. You can do it yourself for about $50.
2. Post a disclaimer on everything you make. Your disclaimer should include a phrase like; "you do not make any warranties of merchantability or fitness for a particular purpose, either expressed or implied. By using this material, the user assumes complete responsibility for any and all damages resulting from that use."
3. Provide a "limited warranty" that defines the specific things that you guarantee about your product. If you don't, then your product is subjected to the default general "warranty of merchantability". Basically an unconditional guarantee.
4. If mis-assembly or misuse of your product might cause damage, then you need to provide complete instructions. Clearly state the proper use of the product and place a warning about misuse of the product.
5. Place large clear warning labels on your product and the packaging. The presence of warning labels has protected many businesses from large legal settlements.
6. Write a complete manufacturing specification for your product. Many lawsuits are based on the presence of a "manufacturing defect". Although a specification can work against you, if you don't have a manufacturing specification, that in itself is evidence of negligence.
Don't jump into starting a business without taking steps to protect your personal assets. A business failure is a sad thing, but a business failure where you also lose your personal assets is a tragedy.
And by the way - I make no warranties of merchantability or fitness for a particular purpose, either expressed or implied. By using this material, the reader assumes complete responsibility for any and all damages resulting from that use.
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