This is the standard model for larger businesses, in which a shareholders will only lose the amount invested (in the form of stock value decreasing).
Limited liability aids entrepreneurs, businesses, and the economy in growing and innovating.
Errors/omissions is another category where a lawsuit can result from a mistake on the part of the company such as in a contract or paperwork.
Finally, the last major category relates to holding directors and officers personally liable for actions taken by the company, as seen in piercing the corporate veil.
[7] Product liability governs civil lawsuits between a plaintiff and defendant who furnishes defective goods that caused loss or injury 11.
"Caveat emptor" ("let the buyer beware") reigned supreme in this area of the law.
In this era, the seller had no liability unless they had made an express promise to the customer that was not received.
The law finds that sellers and manufacturers can face more liability for defects with the help of insurance and socializing the damages by raising prices and forcing the consumer to pay for it.
[6] If a manufacturer is found to be negligent, that means they breached their duty to the customer by not eliminating a reasonably foreseeable risk caused by the product.
The manufacturer can be seen as negligent if there are problems in the manufacturing process, do not properly inspect their products, do not give a reasonable warning to the customer when the product has a foreseeable risk of harm, and/or the design lends itself to risk of harm.
[6] On the other hand, if the employee was found to have either detoured or frolicked then defining the scope of employment becomes trickier.
A frolic is when the employee causes a tort when completing an activity that is unrelated to their job.
An example of a detour would be if on the way to deliver a package, a delivery driver stops at a drive-thru to grab something to eat.
An employer can also face liability and repercussions if they know that the worker poses a potential danger but keeps them on the job.
To avoid claims regarding negligent hiring or retention, employers should be diligent when hiring employees who will have a lot of contact with customers and the public (especially if they will have access to vulnerable members of the public, go to customers' homes, and/or have access to weapons), and dismiss any employees who pose a potential danger.
Employees are subjected to more control while nonemployee agents, like independent contractors, have more freedom in how they do their job.
[6] An employer should also be aware on how the extent of their liability can change based on the agreements their agents make.
An agent is a person who has the power to act on behalf of another party (typically the principal).
Actual authority is the ability an agent has to pursue and complete certain activities based on communication and manifestations from the principal.
[6] Economists use the term "legal liability" to describe the legal-bound obligation to pay debts.