Video explaining how to sign a contract on behalf of a business. See below for an enhanced video transcript.
[Enhanced Video Transcript:]
Hello, and welcome to another edition of Genesis Law Firm Teaches. Today’s topic, How to Sign on Behalf of a Business. Why is this topic important? When you sign a contract on behalf of a business, you expect to obligate the business and not yourself as an individual. For instance, if you’re a CEO and you sign a $2 million contract, should something go wrong, you don’t want the other party to sue you as an individual and take your house.
Moreover, I’ve noticed that many business owners receive contracts that have improper signature blocks at the bottom. Those signature blocks, if not edited, would obligate the individuals who are signing the contract rather than just obligating the business. So if you want to ensure that you’re not accidentally obligating yourself as an individual, make sure that you understand the requirements for a proper signature.
Requirements for Proper Signature Block
Here is what needs to go in that signature block. You need to have:
- the business name at the top,
- then your name in your representative capacity, and
- lastly, your title, again indicating that you’re signing in a representative capacity.
Let’s look at an example using our law firm:
This would be the bottom of a contract, because the very bottom is usually where the signature block goes. It doesn’t have to be in a box like this. I’m just putting it in a box so that you can identify what part of the whiteboard I’m referring to.
As you can see from this example, within this signature block, it would:
- Have the name of the business written at the top. In this case, it says Genesis Law Firm PLLC. It doesn’t have to be in all caps like here. But oftentimes, that is how it’s written out.
- In the middle would be the signature line. My signature would go here in this example. Below the signature line is a place for the person to legibly indicate what his name is. So in this situation, I would legibly write out my name below the signature line.
- And then below that, I would indicate what my signing capacity is. The example says, “Managing Member.” Instead of Managing Member, you would put whatever your representative capacity is within your business. It could be CEO. It could be CFO. It could be any other position within your business.
Something to note if you’re in your pre-incorporation phase. That is, if you’re forming a business entity of some kind, like a corporation or an LLC, but you’ve not yet completed the formation process. No matter how you sign a contract, you’re probably going to be obligating yourself as an individual rather than obligating just the business.
There is an exception to that rule, though. The exception applies if:
- the person who your contracting with knows that you are still forming the business and,
- has agreed to pursue the business and not you as an individual.
If you’re hoping to fall into that exception, then it’s a good idea to both sign the contract the way that I have delineated here but to also have written into the contract that you’re still in the pre-incorporation phase and that the person who you’re contracting with has agreed to pursue only the business and not you as an individual.
Sole Proprietors and General Partners
One more thing to note, if you are a sole proprietorship or a partnership, that means that you do not have a business entity in place between you and the person who the business is contracting with. And so if you are the owner of the business and you sign on behalf of the business, you’re still obligating yourself as an individual even if you use this proper signature block.
If you are running a business and you’re hoping to avoid obligating yourself rather than just obligating your business, it’s important that you incorporate, that you form a corporation, LLC, LLP, or one of these other limited liability entities.
If you would like more information on this or other legal topics, I would encourage you to go to explore the resources section of our website. Or call our firm toll-free at 866-631-0028 to speak with one of our business and contract lawyers.
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