How to Sign a Contract as an LLC
One of the primary reasons to form a Limited Liability Company (LLC) is to protect your personal assets from the business creditors. A member of an LLC is only liable for the investment amount into the business, his personal assets are generally not reachable by business creditors. Following the correct business and statutory rules and procedures will help ensure personal liability is not incurred. The simplest trap that small business owners can fall is failing to properly sign their business contracts. Failing to sign a business contract on behalf of and for the business can cause a member of the LLC to be personally liable for the contract, breaking any asset protection strategy using the LLC. Follow these guidelines to help protect your personal assets from your business creditors.
The first guideline is to ensure the individual with authority signs. In an LLC, both members and managers may have the ability to bind the company in a contract. Check your operating agreement or formation documents for any company specific rules. Generally any member or the manager may sign the contract and bind the company.
Next, be sure the introductory paragraph and the signature blocks match completely. Many contracts start with a recitation of the parties and the agreement. The names in the signature block at the end should be exactly the same as those state in the recitation. This will help clear any confusion over whom is signing and what is being agreed, possibly saving thousands in litigation costs. Include any fictitious business names used such as a DBA, or doing business as. The legal entity must be correct in addition to matching in the recitation and the signature block. You must use the legal entity’s proper name as registered with the Texas Secretary of State. You can search the Texas Secretary of States’ database here for the correct filed name.
While searching the correct entity at the Texas SoS website, make note of the officers registered with the State. Generally these individuals have the authority to sign contracts and bind the LLC. While some LLCs may restrict the general rules in their operating agreement, an executive, member, or manager of an LLC can bind the company because they have the apparent authority to do so to other parties. In longer term or large figure contracts, due diligence into the company and who has the actual authority to sign a contract is warranted.
Lastly, when signing any contract for your business you must sign on behalf and for the company. This needs to be clear in both the recitation, within the contract itself, and in the signature block. As a member or manager of an LLC you must sign in that capacity to bind the company. Also signing only in that capacity will help protect you from incurring personally liability. Here is an example of a signature block for an LLC:
Or an example for an LLC with a ficticious name or a DBA:
DBA: AWESOME ACME CO.
These few guidelines can help save you and your business from the severe consequences of improperly signing a contract. Ensure that only individuals with authority to bind the company sign the contract, the recitation, contract, and signature block are exactly the same, and sign only on behalf of and for the company. Never sign in your individual capacity, this will always incur personal liability.
For Texas small businesses grappling with complex legal or contractual documents, save time, money, and secure your business by using Reidel Law Firm for your legal and business needs. Reidel Law Firm helps Texas small businesses with flat fees and comprehensive business and legal solutions. Call us today at (832) 510-3292 or fill out the contact form below.