Risk Management and how to avoid personal liability

There are many business risks which can easily be avoided if you know about them in advance and take some simple risk management steps. There are also many personal risks which a company won't protect you against. For example, there are quite a lot of situations where you can be held personally liable for a company's debts and actions (see Starting a Business).

Preventing "partnership" problems

You would be amazed how many businesses fail because of misunderstandings or disagreements between the business owners or shareholders. The chance of this happening can be minimised by discussing what can go wrong, agreeing on ways to prevent it and recording it in a shareholders agreement.

Ideally this should happen before the business starts but some people are not aware of the risk so they don’t take the necessary preventative action. If this applies to you, do something about it soon because you never know when something can go wrong.

Preventing problems with customers, suppliers & other businesses

Misunderstandings with customers, suppliers and other people you do business with can be costly, particularly if it causes a breakdown in the relationship or, worse still, litigation. The likelihood of this happening is reduced significantly if you follow our guidelines to ensure you are protected with an effective contract ... an important part of risk management. See Contracts - an essential guide.

Preventing employee problems

A professional employment agreement (not just a one page letter of appointment) is also important for risk management. Apart from protecting the business against things such as employees leaving and setting up in competition, it will help avoid liability for other things such as a discrimination claim which can result in both company and personal liability even if you had no idea that any discrimination was going on.

Preventing problems in general

Know your legal obligations
It is not uncommon for businesses to get into legal problems without intending to, or without even knowing that they have done anything wrong. For example:

• Sales people often say things to get sales which are exaggerated. If it is 'misleading and deceptive' it can result in legal liability and fines.
• "Borrowing" another company's wording (e.g. from a brochure or advertisement) is a breach of copyright. Using a similar logo or name can also land you in hot water.

Know the legal rights of others
Be aware of the legal rights of others you are dealing with as well as your own rights. For example: if you take advantage of unequal bargaining power to get an advantage, the other party may be able to take action against you to get an unfair contract set aside.

Before negotiating any significant deal it is advisable to get legal advice because the legal position may have a significant effect on the outcome.

A 'paper' trail is important for risk management

Quite often contracts 'evolve' through a series of meetings, phone conversations, emails, etc. Often there is no formal documentation. This can cause problems unless you keep a paper trail or, preferably, send an email to the other party summarising what has been agreed on.

Contract risk management

Your risk exposure partly depends on the quality of your business contracts - how good the agreement is that you have negotiated and how well it is drafted by your lawyer. More information on this can be found on the Contract Law page.

Risk management after a problem arises

Preventing disagreements turning into disasters
The key to this is to ensure that whoever is responsible for managing the problem can be objective and has conflict resolution skills. If there is any possibility of needing legal advice, get it as soon as possible and choose a lawyer who has the skills to help nip a problem in the bud, not just litigation skills.

Covering yourself
Keeping a written record applies to disagreements as well as agreements. Providing you have handled the discussions without making any unnecessary admissions, a written record may give you a significant advantage if the dispute turns nasty.

Full article on risk management

The above is a summary of the article Asset Protection & Risk Management. The full article can be obtained by completing the Contact us page.

If you need any specific risk management advice, feel free to ask us any question you have and we will provide preliminary online advice free-of-charge.