I’m an Engineer to the core, which can be a curse as I see risk in everything. This apparent paranoia is at least partially a result of my professional training: managing risk, rather than ignoring it, is one of the core competencies of an Engineer. I’ve acquired a sound education, excellent skills and wide experience of engineering, and as such I always seek to avoid mistakes and deliver a professional service, but it would be irresponsible to ignore the possibility that something could go wrong.

As a Sole Trader I am legally considered to be Conceptric, and as such I am directly liable for everything Conceptric does. Additionally, everything I own also belongs to Conceptric: I have unlimited liability. As the size and complexity of Conceptric’s projects grow, and their nature changes, this arrangement becomes increasingly uncomfortable for the risk-averse.

Professional indemnity insurance covers the cost of correcting mistakes or legal costs arising from giving incorrect advice or making a mistake. It also helps to ease the risk-averse mind.

The cost is relatively modest for a web developer, but since I’m considering a foray into engineering consultancy I checked out the premiums for that type of work. It turned out that they’re at least 3 times higher, which tells me that insurers see my venture as substantially more risky.

In this context the unlimited liability of the Sole Trader feels even more undesirable; I don’t mind risking the money tied up in Conceptric, that’s business, but my home!

Then it occurred to me, what about incorporating Conceptric, it could assume liability instead of me. I work alone, so I’d set Conceptric up with a single Director and Shareholder, both me, as this is the simplest way to satisfy the legal requirements of incorporation in the UK, and as an employee of Conceptric I should be much safer.

It seemed like the best solution, at least it was until I read a little more.

It turns out that even though they’re employees, directors can be held legally responsible for the actions, especially negligence, of their companies. This isn’t common since a direct link between the actions of the Director and the service provided by the Company has to be proven, in effect showing the director has taken personal responsibility for the matter and is not merely acting as a manager.

But I’d be the sole director and only employee of Conceptric, surely even the most slow-witted lawyer shouldn’t have too much trouble proving I’d taken personal responsibility.

All of a sudden it seems that I could be sued both personally and via Conceptric, that’s not a step in the right direction. It seems incorporation offers dubious protection for the freelance or consulting engineer.

The insurance you’d buy even as a Sole Trader may not protect you from legal liability, but at least helps pay the resulting bill, and you’d have to be mad not to do the same as the Director of a one-man company.

My current inclination is to remain a Sole Trader and fork out for the additional professional indemnity insurance, making sure the amount insured matches the size of the engineering jobs I’m taking on, as a Chartered Engineer I may be able to negotiate lower rates.

If my income grows, or I need to take on employees, then I may reconsider. But the increased administration costs of an incorporated Conceptric are prohibitive at the moment. However, there’s one final consideration, the benefits of incorporation with respect to marketing, but I’ll address that when, or if, it becomes an issue for Conceptric.

I think that this is the basis of investment, but there’s a fine line between investing and gambling. It’s a matter of risk perception and probability; professional gamblers know the value of the safety play.

There’s always the temptation to take that single large punt on a risky investment in the hope it’ll pay off big… against all rational odds.

If it succeeds, we’ve a tendency to take on greater risk in the future. Eventually probability will catch up with us, and those risks generate a single crippling loss: the hallmark of a bubble.

If we failed at the first attempt, we’re left sitting on a massive loss, so what have we got to lose? Things can’t get any worse, right? This is probably what a lot of financial stock investors were thinking whilst they averaged down.

This is a slippery slope: do you give up on these risky practices, and try to slowly walk back into profit, or take one last risk in the hope that you can make it all back at once?

Personally, I prefer to think of myself as an investor, and the slow, steady, and above all balanced approach best suits my conservative tendencies.