December 27, 2010
*****************
*************
Question
***********
Ken
Can you explain what you mean by personal liability for negligence of your own even if your a corporation and give an example.
Thanks
Brett
************
Answer
***********
A person who is negligent and causes damage or loss has personal liability. When your corporation is sued on a burglary loss, for example, the allegations are that the corporation was negligent, but what is really being claimed is that corporate employees were negligent somehow, either in installation, service or monitoring. Every person who is shown to be negligent could be named in the lawsuit, personally.
If you're a one man corporation and do all the work yourself, then if there is negligence by the corporation it's likely that it was you who was negligent. You could be named as a defendant along with the corporation.
If you are a corporation and one of your employees is negligent, and your corporation is sued, you would not be a proper defendant, but your employee who was negligent could be named as a defendant. Most of the time that doesn't happen because the employee name is unknown at the time the suit is started and also it is assumed that the corporation either has insurance or a deeper pocket than the employee. Since the employer is responsible for the loss caused by the negligence of its employees, the corporation can be sued without the employee. The reverse is also true, the employee could be sued without the corporation. That could happen if the corporation is out of business.
A contract debt is different. If your corporation contracts a debt you are not personally liable for that debt unless you guarantee it.
*************
Question
***********
Ken,
Now that my ship has sailed what can I do to better protect myself/investment? I have been a DBA sole proprietor type alarm business for 9 years now and I have not incorporated. Could I switch over to being incorporated without having my subscribers resign a new contract and still not have to look over my shoulder because of the installations and contracts that were signed before my incorporation?
Thank you for bringing this matter to my attention,
Jon Holland
************
Answer:
***********
I will assume you use my Standard Form Contracts, in which event you should form a corporation, elect sub chapter s status, and assign all your contracts to the corporation. Then advise your subscribers along with the first invoice from the corporation.
If you don't use my contracts then I don't know how the assignment will affect you. You may continue to be liable under the contract as the assignor. That is not the case with my Standard Form Contracts because of the contract terms.
If your contracts are outdated or don't relieve you of responsibility as assignor then the best practice would be to get new contracts signed. That won't get you off the hook personally for the installation or anything that happened in the past, but at least you won't have continued personal exposure.
Unless your attorney, accountant and insurance broker have advised you to incorporate, you need to get new professionals to advise you.
You are indeed fortunate that your ship has not taken on water and hopefully you'll follow my advice before your ship sinks.
*****************
Question:
***********
Ken,
I wanted to make sure I understand this correctly. I thought that LLC AKA limited liability Companies are limited on what liability to such as myself being a member of the LLC. What I understand by them is that if let’s say my company was sued and the person suing won, then they can only come after what the company owns, and they could not touch my personal assets such as my house, car, or boat, etc unless it was a personal guaranty that I would have signed for a let’s say bank loan then they could go after me personally. I am from Missouri and I’m not sure but isn’t an LLC different between different states. I also understand that LLC have the same coverage as far as liability as a corporation. Please clarify more thanks Ken.
Jeremy
**********
Answer:
**********
You would be correct if the liability was contractual, or if the person who was negligent was someone other than you. But if you were the tech who was negligent then you could be sued along with your LLC. You are correct that if only the LLC is sued you would not be personally exposed to damages.