Among the tort exceptions to limited liability for a small business owner is selling or hiring in a personal capacity. Doing this could negate carefully constructed asset protection plans.
To avoid this outcome, the business owner must ensure that all business contracts are formed in the name of the limited liability company (LLC) or corporation, and that he signs these contracts solely as an agent of the LLC or corporation. This is necessary if the owner is to escape personal liability for the contracts.
However, there is another reason to ensure this outcome. If an employee is hired personally by the owner, then the owner and not the LLC or corporation will be the principal. In this case, if the employee commits a tort, then his principal (i.e., the owner personally) will have unlimited, personal liability, in accordance with the doctrine of respondeat superior.
This could result when there is a written employment agreement that has been improperly executed in the name of the individual owner, or where there is no written employment agreement and the owner pays the employee from a checking account in the owner's personal name. In both cases, the business owner will be the employer/principal.
 |
Work Smart
The small business owner must avoid being deemed the personal employer/principal of employees. The LLC or corporation must be the employer.
A written employment agreement is advisable in all cases. The agreement must clearly identify the employer as the LLC or corporation, and the owner must properly sign solely as an agent of the LLC or corporation.
The written agreement can be simple, specifying job description, rate of pay, and that the relationship is employment at will, for example, if that is desired. In employment at will, the employee may be terminated without providing a reason and without advance notice (and the employee may quit without giving a reason or any advance notice).
A written agreement also can be used to specify that the worker has been hired as an independent contractor (see our discussion of how the use of independent contractors can significantly reduce exposure to tort liability).
An informal relationship with employees (i.e., where no written employment agreements exist) can still be used, but this offers less protection. In this case, paychecks in the name of the LLC or corporation only can be used to establish that the LLC or corporation is the employer.
|
|