What happens to your assets when the liability limits are exceeded? If you have a liability left, your own assets cover the difference. These assets include your ownership in a closely held corporation.
Your co-owners probably don’t want your accident victim who just sued you as a partner.
Proper risk management identifies all exposures to loss. One often overlooked issue is loss of ownership control due to personal liability.
Co-owners often consider divorce scenarios or the death of a shareholder. Life insurance resolves the death issue. First right to purchase will generally resolve divorce cases. Once assets are placed into bankruptcy, however, buyout options will become more difficult to execute.
If the liability issue takes years to resolve, that ownership share may be in limbo for the duration.
Avoid this risk by requiring all shareholders to carry some high minimum limits of personal liability. It’s the responsible approach to ownership.
One way to accomplish this is the combined personal and business umbrella policy. Endorse the umbrella to include shareholders.
This endorsement will require high underlying limits of liability on homeowners-policies and personal automobile.
This endorsement is not offered by every umbrella carrier or in every state. But ask your insurance agent about the option.
The important outcome ties personal liability management to the right to own a piece of a closely held corporate entity or partnership. Fate should not choose the next shareholder.
Use an independent service to review all partners personal risk management situation. Assure adequate limits are in place including truly disastrous scenarios. Add layers of umbrella as needed or endorse the company policy.
Having trouble thinking of possible liability losses for your partner?
1. The daughter, son, foreign exchange student grabs the family car and goes on a drunken joyride.
2. The spouse slanders a local business rival.
3. Your personal computer is hacked and some employee personal information is backed up on the memory stick attached.
Most of the scenarios you cannot think of are the better reasons to manage the owners personal risks.
