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Why Startups Are Particularly Vulnerable to Liability and Lawsuits

The small business, startup, and entrepreneur community is not only arguably the most vital, valuable, and exciting branch of the economy, it’s also an incredibly important driver of innovation, creativity, and technological advancement. Which is why the perpetuation of startup culture is so important. And that culture’s health and longevity relies on those startups being established, becoming successful, and staying in business.


Unfortunately, many of the features that are responsible for startups being so dynamic and groundbreaking can make them uniquely vulnerable to devastating lawsuits. A lack of experience, innocent mistakes, jittery investors and stockholders, and plain bad luck can spell disaster for a startup, even one that is otherwise successful.

Thankfully, there are steps the founders, officers, and management of a startup can take to mitigate or even alleviate their vulnerability. Steps that can mean the difference between the success or failure of a startup or small business.

Is D&O Insurance Really for Startups?

As the name implies, directors and officers (D&O) insurance is designed to protect the directors and officers of a company from any lawsuit alleging mismanagement of the company. There are, however, some misconceptions about D&O insurance that have a tendency to circulate in some business circles.

One of them is that D&O insurance isn’t relevant for startups and that it’s only for the brass of mega-corporations managing billions in assets. If you’re curious whether or not your startup could benefit from D&O insurance, ask yourself this question: Does your startup have any shareholders, customers, contracts with government agencies, or business competitors? If the answer is “yes,” D&O insurance can indeed protect your business and securing coverage may be a wise decision. Not to mention, those huge corporations often have the assets to absorb the cost of a lawsuit, win or lose, that the average startup just doesn’t.

Lawsuits Are Only a Risk for and From Fraudsters, Right?

Another misconception, generally held by the founders of startups, is that if they operate honestly, ethically, and respectfully, and only hire or financially associate with people who do the same, and stay compliant, they’re not at risk for a lawsuit. Therefore, according to their logic, lawsuit-protection policies like D&O insurance or EPLI insurance simply aren’t worth it.

Sadly, that’s not the case. Discerning, conscientious, and even scrupulously honest business owners can (and will) make mistakes. Experience has to be earned and sometimes it comes through hard lessons. Even the shrewdest, most seasoned corporate execs with decades of hiring experience under their belts will tell you that being able to distinguish the legitimately good, trustworthy candidates from those who just talk a good game, can range from being really tough to nearly impossible.
Business with Family and Friends

Startups are usually a very personal labor of love for their founders, and very often, that labor has been shared among close friends or family members. While business relationships with the people you trust and care for most in the world can prove to be incredibly fulfilling and successful endeavors, there’s another side to them.

Take people with close emotional bonds, add money and the success of a business those people are passionate about and things can get extremely heated. Strictly financial partners can brush off the mistakes, minor misadventures, and misunderstandings that so often accompany running a business. While the same minutiae can explode into intensely personal antagonism between friends and family. All in all, the comfort of having an insurance policy you may never need is always preferable to the alternative.

About Embroker

Embroker is a thought leader among digital commercial insurance brokerages. They established themselves as industry innovators by combining the most trustworthy, cutting-edge data and technology with real, practical industry specialization. It’s an approach that’s consistently resulted in Embroker offering growing businesses and startups high-quality coverage be it D&O insurance, EPLI insurance, cyber insurance, or all other lines of P&C insurance. Their Startup Program offers market leading coverage in under a minute and is custom built for startups. Since their 2015 founding, Embroker has served more 1,800 industry clients and is licensed in all 50 states.

Find the insurance your startup needs, at Embroker.com

Original Source: https://goo.gl/w4zzjY