Avoid personal liability by signing contracts correctly

Avoid personal liability by signing contracts correctly
One major reason for forming your LLC in the first place (or incorporating any business entity), is to insure that your business liabilities do not affect your personal assets. In other words, a business debt should not become a personal debt. When signing a contract, it is critical that the contract reflects the fact that your company is entering the agreement, not you personally. The idea that a corporation or LLC is a separate "person" from its owners causes some people confusion.


A corporation or LLC cannot, obviously, act on its own. Your LLC has no "hand" to write or sign a contract with. An LLC is a legal construct, not a human being. So while your LLC can enter and be bound by a contract, it must do so through a person acting in a managerial capacity. That person is you. So, the signature block and the language of the contract itself must identify who is entering the contract:
  • The LLC?
  • You personally?
  • Both you and your LLC?
All three are legitimate possibilities.

#1: Be sure that the contract uses your LLC name, not your personal name

The party to the contract must be your LLC, with the full name and "LLC" or "Limited Liability Company" name at the end. For example, if your company name is "John's Landscaping Service, LLC", then the contract must use that as the name of the party, and not John Smith's--the owner's--name.

#2: The signature block must identify the capacity that you're signing in

This is the harder part. An LLC or corporation cannot sign a document. A human must sign. However, the law allows a person to sign on behalf of an LLC simply by identifying the person's position in the LLC and a short statement explaining what capacity they are signing in.
Examples:
Incorrect Signature block:
Agreed this day, June 10th, 2006, by:
John Smith
Correct Signature block: Agreed this day, June 10th, 2006, by:
John Smith, Manager of John's Landscaping Service, LLC
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