LIABILITY IN SMALL BUSINESS

I have a small business – a travel agency. I’m not so sure about how liable I am in relation to my business. Any assistance?

People like you who have a small business – travel agency, real estate agency, accounting business even the corner shop proprietor would usually be classified as a ‘sole trader.’ Sole traders are ‘absolutely’ legally liable. This means if someone sues, you could lose all your assets. Theoretically, a sole business owner has what is called a ‘legal entity’. This means you can sue and be sued in your name. If someone is in your office or shop and slips and claims it was your negligence for not keeping the premises clean, they can sue you for unspecified damages. Of course, normally, business owners take out appropriate insurance policies. 

Defamation

 Our social group brings out a monthly journal and in the last issue we included a few lines copied from another major journal. Now we are told what we included in our journal is likely to be defamatory. How can we be liable for defamation when we copied it from another journal?

Theoretically, when one publishes defamatory material, it does not matter whether or not the defamatory material was copied from somewhere else. Defamation, basically, occurs when someone communicates in any way which lowers or is likely to lower the reputation of another. Intention and motive are irrelevant. Basically, what the plaintiff – the one aggrieved by the defamatory statement – has to prove in a defamation case is that what was said about him was defamatory, that the material identified the plaintiff himself and the defamatory material was in fact published, meaning it was spoken or printed or put on air or on the internet. So in publishing defamatory material, even if you were copying it from other sources, theoretically you would be liable. However, the fact that you were not the original offender would be an issue in terms of reduction of damages. Of course, there are a number of defences to defamation especially for journals and newspapers.

DIRECTORS’ LIABILITY

I am a director of a small company. The two other directors borrowed money for the company when I was overseas – I did not know they borrowed money. They are now being investigated for possible fraud on the application for the loan. I was also listed as a possible defendant. Do I need to worry about this matter when I had no idea the money was being borrowed for the company?

First, Corporations Law (Australia) states that when directors are about to borrow money on behalf of a company, if they suspect that the company would not be in a position to repay the loan, they must NOT borrow that money. Now if these directors did in fact borrow the money and you can prove that you had no idea that money was being borrowed you will have a defence under Corporations Law. You will have to prove that you were overseas and that no one ever told you or implied that money was being borrowed for the company.  Including you as a potential defendant is procedural because all names of directors of the company would be on a future summons.