Legal-Ease: When does an LLC not work?


By Lee R. Schroeder - Guest Columnist



There are misconceptions about the comprehensiveness of LLC protection when it comes to accidents and other similar catastrophic events.

Generally, when someone is acting (working, volunteering, etc.) for another person (owner) and that actor causes an accident, the owner is legally responsible for the actor’s accident—not the actor himself or herself. This is based upon a longstanding legal doctrine that provides that employers are responsible for the actions of the employer’s employees/volunteers who are acting within the scope of the employee’s/volunteer’s duties.

The owner/actor determination continues to apply even when the actor who causes an accident works for an LLC owned by that employee.

In other words, presume that a farmer named Joe is the sole owner of an LLC. Joe personally works for the LLC that Joe owns. Within the scope of the LLC’s operations, Joe may cause an accident. If the LLC’s insurance does not cover the accident’s damage or if the accident’s damage exceeds the limit of the LLC’s insurance, the LLC is responsible for the accident, not Joe personally. This is the case even though Joe personally caused the accident and Joe is the only owner of the LLC.

This liability protection only usually fails to work under two circumstances.

First, if the LLC is not properly managed, with separate sets of books, separate accounting and formal governance procedures, the LLC’s protection will likely not provide its intended protection. It is for this reason that it is always better to hire a local lawyer to help establish an LLC rather than purchasing some package over the internet. A local lawyer can help to ensure that the LLC’s governance structures and accounts are properly set up at the outset, which likely leads to the same procedures being followed throughout the LLC’s existence.

Second, the LLC’s assumption of liability (limiting the liability of LLC owners and employees) can fail if an employee or volunteer who causes an accident was acting outside that employee’s or volunteer’s scope of duties.

For instance, presume that the example above involving farmer Joe has slightly different facts. Let us presume that Joe’s accident occurs in an LLC-owned vehicle during work hours but let us presume that farmer Joe’s accident occurs while Joe is delivering illegal drugs. Obviously, illegal activity like drug-dealing is never in the scope of an employee’s responsibilities, so Joe personally would be legally liable for the accident.

Similarly, if Joe is using the LLC’s vehicle during regular work hours but causes the accident while Joe is on a personal errand, Joe personally will likely be legally responsible for the accident.

Therefore, a key component when determining whether an LLC will assume legal liability (and protect owners and employees/volunteers from liability) is whether the certain accident occurred within the scope of employment or work. This analysis typically does not change depending upon whether the employee/volunteer of the LLC is paid or not. And this analysis also seldom changes depending upon the identity of the owner of any vehicle involved.

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By Lee R. Schroeder

Guest Columnist

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.

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.

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