By Gaëlle Gagné
Business Officer - The Business Link

As an entrepreneur, you know you have to be a risk-taker. Being in business exposes you to all kinds of risks and liabilities, but if you want to be a successful entrepreneur, the risks you take must be calculated. Consider these four tips to limit the risks and protect your new business:

1- Choose the appropriate business structure
Before you can start your business, you need to decide how to legally structure your business. Three options are available, all with their own advantages and disadvantages: sole proprietorship, partnership or corporation.

A sole proprietorship is the simplest way to set up a business. A sole proprietor operates alone without any formal structure and is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor has a right against all of his or her assets, whether business or personal. This is known as unlimited liability.

A partnership is an agreement in which two or more persons combine their resources in a business. Partners share in the profits according to the terms of their agreement and the management of the business, but each partner is personally liable for 100% of the debts and obligations of the business. This means that each partner is not only responsible for his share of the debts of the business and his or her own actions, but must also assume the consequences of the actions of the other partner(s). This makes partnerships the riskiest way to do business. In order to establish the terms of the business and to protect partners in the event of disagreement or dissolution of the business, a partnership agreement should be drawn up with the assistance of a lawyer.

A corporation is a legal entity that is separate from its owners, the shareholders. Except for certain circumstances where directors and officers are deemed liable, where an individual agrees to give a personal guarantee, or where services are provided negligently, the individuals associated with a corporation cannot be personally liable for the debts, obligations or acts of the corporation. This type of business is your best protection against personal liability and can be incorporated at either the federal or provincial level.

To help you choose the form of business structure which would best suit your needs, read " Forms of Business Organization" on our web site.

2- Use good contracts
Signing contracts with others (clients, suppliers, employees, other businesses, etc) is an important part of running a business. A contract is a legal document which can protect you if things go wrong, so make sure you draft it properly to make it legal and binding.

When it comes to drafting contracts, it is recommended to hire the services of a lawyer. This will guarantee you the best protection possible with a document that is tailor-made to meet your needs. However, because of the legal fees involved, many business owners prefer to draft their own contracts. If you decide to do it yourself, make sure to use the many resources that are available to you at The Business Link such as self-help books, sample contracts and useful web sites.

To learn more about contracts and what you need to know when reading and writing them, read " Contracts" on our web site.

3- Insure your business
What risks can you afford to take, what losses could you manage, what should you insure? Your business and personal situation will determine your insurance needs. Your business may have many assets to protect (vehicles, an office and equipment, inventory, an indispensable employee or partner and even yourself) and may also face many potential legal liabilities which can be covered through the right insurance.

You can ask an insurance broker to provide you with a customized commercial insurance policy that will cover all aspects of the protection you need or you can purchase a small business insurance package available from most insurance companies and brokers. These inclusive packages usually cover damage or loss to business inventory and can include basic coverage for business liabilities, loss of earnings, and errors and omissions. You need to be sure that the package you choose covers what you need – and not what you don't. Talking to an insurance broker and having a plan specifically for your business may meet your needs better than a generic package.

Learn more about business insurance and liability on our web site by reading "Small Business Insurance: What You Need and Why You Need It" and "Business and Liability".

4- Hire a lawyer
Lawyers provide legal advice. This doesn't mean that they can make your business decisions for you. He or she should be able to identify legal issues that concern your small business, tell you what the law says about these issues, and on your instructions, help you to address them.

The cautious (and therefore recommended) approach is to seek the advice of a lawyer whenever a legal issue arises that involves your small business. Of course, it is not always clear when that happens. Many problems can be solved without resorting to lawyers, people solve their own legal problems every day. However, don't hesitate to call a lawyer to find out if they could help you deal with a specific problem. Lawyers can help you protect yourself and your business from any possible legal issues. By trying to deal with legal issues on your own, you may forget something, make a mistake and find yourself spending a lot more money that you would have spent on legal fees.

To find out where to find and how to hire a good lawyer, read " How to Hire a Lawyer" on our web site.