Clients regularly ask me what assets new business entities should own versus what assets the clients personally should own.
For instance, presume that a general contractor drives a pickup truck while doing construction work for the general contractor’s LLC. And, that general contractor drives to church and picks up his kids from daycare with that same pickup truck. The question arises as to whether that pickup truck should be owned by the LLC or the general contractor personally.
The answer is simpler than most people think. The owner of a vehicle is only usually responsible for an accident involving the vehicle if the owner knew or reasonably should have known of an unsafe condition of the vehicle and that unsafe condition caused the accident.
In almost every other circumstance, the owner of a vehicle is seldom responsible for accidents caused by the driver of the vehicle. In most instances, the driver who caused the accident is the person financially responsible for the accident.
Imagine that I rented a tractor from a local farm implement dealer. If I pull out in front of another vehicle and cause an accident with that tractor, the implement dealer would not have caused the accident and would not be financially responsible for the accident. However, if the accident was caused by faulty brakes and the implement dealer knew or should have known that the brakes were bad, the implement dealer may have some financial responsibility for the accident.
This conclusion can seem confusing in light of Ohio’s vehicle insurance law. In Ohio, a vehicle owner must provide at least state minimum insurance coverage for all drivers of a vehicle, even if the drivers are not the owner.
Otherwise stated, if a family member of mine causes an accident while driving my truck, the insurance that I am required to have on my truck will pay until the policy limit is reached. The ultimate liability after that will be the responsibility of the driver personally or that driver’s own insurance.
When vehicles are regularly used by people or entities other than the owner, the owner and the users should have a lease agreement between or among them. There is no responsibility under a lease like that for rent payments to be paid to the owner. However, paying rent to the owner can somewhat deepen the liability separation between an owner and a user.
This risk is explained by the following example. A business regularly uses a personal vehicle owned by an owner of the business, without a lease. If an accident is someday caused while doing business using the vehicle, the injured person may try to argue that the personal owner of the vehicle is a “partner” with the business. And, legally, partners share liability, meaning that the entity and person would both be financially responsible. Shared liability wipes out the biggest reason people establish business entities to begin with. A lease agreement between an owner and a user, even if no rent is paid, helps to limit that risk.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.