Failure to Sign Properly as an Agent of the Principal

April 13, 2006

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Inserting the name of the business entity as the party to the contract is necessary to avoid personal liability, but it is not sufficient by itself to avoid one of the contract exceptions to limited liability. The owner must then properly sign the contract as the agent, or representative, of the principal (the entity).

This is referred to as the agent disclosing his "representational capacity." If it is not clear that the owner signed as an agent or representative of the principal, he has failed to disclose his representational capacity. To the law, the owner has thus signed in his personal capacity and, accordingly, has personal liability on the contract.

There are many ways to properly disclose representational capacity when signing a contract as an agent. The classic way is to use the word "by" before the owner's individual name. The owner's title (e.g., manager, president, etc.) should appear after the owner's name. Of course, this alone would induce personal liability. Remember that the principal's name must appear above the owner's signature as well.

Other variations are acceptable, as long as it is clear that the owner is signing as agent of the entity. The following alternative should work, although it is more cumbersome and less reliable: "Signed, John Smith, Manager for ABC, LLC." The best approach, however, is to use the time-proven "by" as described above.

When signing checks, however, a mere signature, along with the owner's title, will be sufficient, without the word "by," provided of course the pre-printed name at the top of the checks is the name of the limited liability company (LLC) or corporation, and not the individual name of the owner. Here, it is understood that the owner is signing as an agent of the entity.

Similarly, in ordinary correspondences, name and title for the signature, without the word "by," will suffice, provided, of course, the name on the letterhead is the name of the LLC or corporation, and not the owner's individual name. However, if the correspondence involves an offer or acceptance, or any other type of contractual promise, the word "by" should be used.

Finally, it helps to use the correct titles. In the LLC, the owner will be either a manager or simply a member. In a corporation, the traditional titles of president, vice president, secretary and treasurer are appropriate.

See our case study on properly signing contracts.