Liability is legal responsibility for harm or loss. For a service business it most often arises through negligence.
Negligence
Failing to take the care a reasonable business in the same trade would take, where that failure causes harm.
The standard is the trade's, not the individual's. Doing your best is not the test if the trade's ordinary practice is higher.
Why documentation matters so much
Whether reasonable care was taken is decided after the fact, largely on records: what was inspected, what was advised, what the customer was told, what condition the work was left in.
Contemporaneous records are evidence. Recollection years later is not — which is the practical argument for quality control and photographs at completion.
Indemnity clauses
A promise by one party to cover the other's losses. Common in commercial contracts, and frequently one-sided.
An indemnity can extend liability well beyond what the law would impose — including for the other party's own negligence in some drafting. It is among the most consequential clauses in a contract and among the least read.
Hold harmless is closely related: a promise not to pursue the other party for certain losses.
Where the business structure helps and where it does not
A company limits the owner's personal liability for the business's obligations — see business entity types.
It does not protect someone from their own negligent act. An owner who personally performed the work can be personally liable regardless of structure, which is one reason insurance matters as much as structure.
Subcontractors
Engaging one does not automatically transfer liability. Where they are working on the business's contract, the customer's claim is generally against the business — see subcontractors.
The insurance behind it
General liability covers injury and property damage. Professional liability covers being wrong. Neither covers a deliberate act.