Small business owners may inadvertently create personal liability in the way they execute documents, such as purchase orders, contracts, and other agreements.
For most small companies, the founder (an owner), also serves as a member of the board of directors and acts as the president (an officer of the company). Each time you act consider in which capacity you are acting. Unless you are agreeing to be bound to the contract personally, execute the agreement as an officer of the company. Since this “thing” (the corporation or limited liability company) cannot act on its own, the corporation must act through its agents, which are its officers. These officers must have the power to act on behalf of the corporation (or limited liability company). This power is usually granted in the bylaws or by a resolution of the board of directors approving the agreement at issue and authorizing someone to execute the agreement on the corporation’s behalf. For a limited liability company, the authority is granted to the manager in the operating agreement, in the sections of the operating agreement creating the officer position or in the members’ or manager’s resolution approving the agreement and authorizing the individual to sign the agreement.
In short, if you are executing a contract on behalf of the corporation, act accordingly.
Often you will confront a contract with the following signature line:
Date: ________ Signature: ________________________
Executing this signature will likely make you personally liable. In such a situation write in the name of the corporation and your title:
Date: ________ By:____________, Title:________
If you are preparing a document for execution, use a form like the following:
By: __________________ [insert your title]
This signature block shows that the corporation is executing the agreement through its agent (you).
Taking this extra step should prevent you from later discovering that you are personally liable for an obligation that you believed (and intended to be) an obligation of the corporation or limited liability company.