A business’s legal classification is extremely important. There are different business structures available and each structure has both negative and positive attributes depending on your organization’s specific needs. But choosing which is best for you can be confusing.
If you are involved in the process of business formation in Boston, it is critical to get the assistance of an experienced Boston business lawyer to help you make the right choices for you and your business.
16 Jade Street v. R. Design Construction Co., LLC. is a recent business law case that discusses the imposition of personal liability on business members. This case involved the construction of a four unit condominium project. A homebuilder named Carl Aten (Aten) owned R. Design Construction Co. LLC and acted as the general contractor in the project. Unable to fund the project, he sought financial assistance from a colleague’s business called 16 Jade Street. Upon the receipt of the initial funds, Aten designed the project and hired subcontractors from Catterson & Sons Construction.
It was later found that Catterson & Sons Construction had negligently developed the portion of the project. Aten was responsible for the supervision and maintenance of the project, but he and the subcontractors left the job without completing it or fixing the flaws. Upon hiring a new team of workers, 16 Jade Street had the construction site evaluated by a structural engineer who found over sixty flaws in the work produced by Catterson & Sons under the supervision of Aten.
Thus, left with a flawed and incomplete construction project 16 Jade Street sued Aten, R. Design, Catterson & Sons Construction, and Catterson. 16 Jade Street sued all four parties under theories of negligence and breach of implied warranties. With any construction project, there is an implied warranty that the project will be completed diligently and properly, and 16 Jade Street alleged that the defendants had breached this implied warranty.
The question then became whether a member of a company can be held personally liable for any of their negligent actions where they are acting to further the business interests.
First the court analyzed the type of businesses that were involved in the case, limited liability companies. This type of company is a hybrid between corporate structure and partnership structure. As to the fact of liability, a limited liability company generally protects company members from personal liability that arose from the member’s job related activities. State law dictates that a company member cannot be held liable unless that member breaches a fiduciary duty, such as by commingling personal funds with business funds. In this case the court found that neither Aten nor Catterson commingled personal and business funds or breached their fiduciary duties in any other way.
South Carolina law indicates that members and managers of an LLC are generally protected from personal liability when their actions are motivated by the furtherance of the business. Because of the dictates of the statute, Catterson was shielded from personal liability for any negligence.
The court did make a distinction as to Aten. Because Aten has a home builder’s license, civil liability attached to his licensure. Where a licensed homebuilder is negligent, the limited liability aspect of the LLC of which he is a member may shield him from personal liability; however, he can be found to have violated his civil obligations as a license holder.
The court found for 16 Jade Street in the negligence action against Aten based on this license theory, and awarded damages.
This case illustrates the importance of your business structure in the area of liability.
The Brown Law Firm, LLC is a Boston business law firm with offices in Belmont and Boston. For a free and confidential consultation, call Attorney Graeme Brown at 617-489-0817 or contact us through this website.
16 Jade Street v. R. Design Construction Co., LLC., No. 27107 (S. Car S.Ct. Apr. 4, 2012).