Limiting Hidden Risks Presented by: James L. Catanzaro, Jr. Minor, Bell & Neal, P.C.

Minor, Bell & Neal P.C. Many businesses commonly engage in practices that are, unknowingly, fraught with risk. Attention to three areas, however, can help businesses significantly reduce the impact of risk.

Minor, Bell & Neal P.C. I.Choice of Business or Joint Venture Vehicle

Minor, Bell & Neal P.C. Why is legal formation with the state preferred?

Minor, Bell & Neal P.C. Associations of individuals or businesses operating commercial enterprises incur “partnership like” liability whether the arrangement is called a partnership or not.

Minor, Bell & Neal P.C. For instance, partners may be held liable personally for the contracts or acts or omissions of a “partner.”

Minor, Bell & Neal P.C. Under the law, where individuals or parties share net revenues, there is a good chance that a partnership will be found.

Minor, Bell & Neal P.C. Even business entities working together, may be deemed a partnership or joint venture and be subject to vicarious liability.

Minor, Bell & Neal P.C. Formation with the State provides for more orderly succession, liquidation or dissolution.

Minor, Bell & Neal P.C. II.Use of independent contractors.

Minor, Bell & Neal P.C. Extension of liability: Respondeat Superior

Minor, Bell & Neal P.C. Respondeat Superior is a legal doctrine that states an employer may be liable for the actions of an employee when the actions take place within the scope of employment.

Minor, Bell & Neal P.C. Many businesses attempt to use independent contractors. However, independent contractor relationships can easily be converted to employment like relationships for liability purposes.

Minor, Bell & Neal P.C. Factors in determining whether a contractor becomes an employee: Control over method and manner vs. end resultControl over method and manner vs. end result Manner of paymentManner of payment Otherwise treat like an employeeOtherwise treat like an employee

Minor, Bell & Neal P.C. Example: Toyota uses “independent contractor” mechanics. If consumers reasonably believe that these mechanics are employees, Toyota may be bound by statements or representations of or notice to such mechanics.

Minor, Bell & Neal P.C. III. Apparent authority.

Minor, Bell & Neal P.C. Businesses may inadvertently “cloth” their agents (whether employees or contractors) with authority that binds them to contracts or representations (even if the employee or agent is not otherwise expressly authorized to do so).

Minor, Bell & Neal P.C. A business that “holds out” an employee or contractor such that a third party would reasonably believe that such person had authority to engage in certain acts, is bound by the acts or statements of such employee or agent.

Minor, Bell & Neal P.C. Holding out may include failing to make clear in questionable circumstances limitations of authority or accepting benefits of the acts or statements of such employee or agent.