By Entrepreneur Staff


Liability Definition:

Anything for which a company is legally bound or obligated, as to make good any loss or damage that occurs in a transaction

More than 80 million lawsuits are filed in U.S. courts annually. That doesn't mean your business will be the target of one, but it does suggest the need to evaluate your business's legal liability.

As your business grows, you should occasionally reassess your exposure to liability claims. Growing companies naturally become more exposed to various kinds of risks. For instance, liability claims resulting from employment, such as charges of discrimination or wrongful termination, tend to increase as your work force grows. Following are some of the major areas of liability exposure you should evaluate from year to year:

  • Employment. The larger and more diverse your work force, and the more turnover you have, the greater your exposure to employment-related liability lawsuits will be.
  • Accidents and injuries on your premises. If a delivery person trips on your steps and breaks a leg, you may be sued for medical and other costs.
  • Vehicle-related liability. If an employee driving a company car gets in an accident, the company could be held liable for damages and injuries.
  • Product-related liability. If you manufacture any type of product, you may be liable for injuries or accidents resulting from poor workmanship or labeling.
  • Errors and omissions liability. You may be sued for damages resulting from a mistake in the work your company does if, for instance, you accidentally delete a customer's important computer file.
  • Directors and officers liability. If you have a board of directors, they may be held personally liable for actions taken by the company.

When it comes to liability, every company is different. For instance, a restaurant that uses hot-oil fryers may be considered a different liability risk by an insurance company than one that bakes its food in ovens. By giving your business a legal checkup, you'll decrease the chances of your particular liability proving to be a disastrous weakness.

More from Legal Issues

Fair Labor Standards Act

A federal law enforcing minimum standards that employers must abide by when hiring employees

See full definition

Family Medical Leave Act (FMLA)

The 1993 law that entitles a covered employee to take up to 12 weeks of leave in a 12-month period for the birth or adoption of a child or the serious health condition of the employee or the employee's child, spouse or parent

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A legal document between parties that clearly spells out just what is expected and required of each party

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Americans With Disabilities Act (ADA)

A federal law enacted in 1990 that makes it illegal for employers with 15 or more employees to refuse to hire qualified people with disabilities if making "reasonable accommodations" would enable the person to carry out the duties of the job

See full definition

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