Liability Insurance?

[DontAsk]

If the size of a sole trader business doesn't merit changing to Ltd Co on financial grounds alone, but personal assets need to be protected, can one buy insurance to give the same cover as Ltd liability, or would it be cheaper just to form a ltd Co?

 

[k100danny]

liability insurance covers you if someone takes you to court for say damaging their property and most sole traders (in certain areas of work anyway) should have this, if you are a trades person for instance. This would give you cover for that but wouldn't protect your assets if you became insolvent. I am not aware of any insurance that provides cover for that.

 

[MyAccountantOnline]

If the size of a sole trader business doesn't merit changing to Ltd Co on financial grounds alone, but personal assets need to be protected, can one buy insurance to give the same cover as Ltd liability, or would it be cheaper just to form a ltd Co?

I've never heard of insurance to cover this risk but am no insurance expert.

Why do you feel the size of your business doesnt merit changing to a limited company?

 

[john1989]

I've not heard of this insurance either. Even a Google search doesn't throw anything up.

As 1 in 5 start up businesses fail in the UK, I would expect an insurance premium to protect personal assets to be very expensive, if available at all.

Surely operating as a limited company is the insurance though.

 

[DontAsk]

Why do you feel the size of your business doesnt merit changing to a limited company?

We will, overall, pay more tax as a limited company, but there are reasons why Ltd. will suit us.

We saw the accountant yesterday to set things in motion for the conversion to Ltd. Co. He recommended "insurance" for the Ltd. company but was a bit vague as to what we might actually need.

What sort of insurance do others have? For the company? For the directors?

[edit]There will be no other employess and all trading is on-line, i.e., we do not enter customers premises, nor do we entertain customers on our own premises.

 

[Paul Kelly ICHYB]

Size has nothing to do with being a Ltd company - it is about risk and perception.

Being a ltd company has a legal definition and protection/risks, something it is unlikely that an insurance could give.

Ask the accountant what he means by insurance - PL, PI, EL - they are required whatever status you are.

From you description, PL is probably needed

 

[DontAsk]

The accountant said we should get advice from an insurance broker, but I want to be prepared for any such discussion before potentially being sold an innapropriate product.

What I don't understand is who or what does extra product liability (I assume that's what PL means) cover, that isn't covered by the limited liability. What's the worst that happens if we don't have it? The company could be wound up? Would there be a stain in the Directors' characters? Do the directors and/or shareholders need personal cover?

 

[Paul Kelly ICHYB]

Sorry PL = product liability, which covers you for issues relating to the products you deal in.

Limited liability is the status of your business - totally different thing altogether.

As a ltd company, it is its own separate legal entity - e.g. people sue the business. If a sole trader, they sue you as an individual. A ltd company gives you a greater degree of protection if things go mammaries up!

 

[MyAccountantOnline]

You may also want to look at fee protection insurance for HMRC enquiries and investigations.

 

[Paul Kelly ICHYB]

Now, Nicola, I am glad you said that...

Have a look here for that!

 

[MyAccountantOnline]

Now, Nicola, I am glad you said that...

Have a look here for that!

Its something I always make my clients aware of.

For the OP your accountant may offer or recommend a good insurer or you may also have some level of cover with trade body memberships etc but do check the terms and exactly what is covered carefully.

 

[Paul Kelly ICHYB]

Nicola,
would you mind if I PM'd you on this?

 

[MyAccountantOnline]

Nicola,
would you mind if I PM'd you on this?

No I don't mind, but I'm very happy to discuss any issues/matters here on the forum if its something which will benefit others.